True Hospitality for Good Annual Report and Form 20-F
Welcome Our purpose is to provide True Hospitality for Good. It brings our brands to life, shapes our culture and represents a commitment to make a difference to our people, guests and communities, and to protect the world around us. With strong stakeholder engagement, together we work towards common goals that help create shared value for all. Holiday Inn Resort, Phuket, Surin Beach, Thailand
Strategic Report
Governance
Group Financial Statements
Additional Information
The Strategic Report on pages 2 to 88 wasapproved by the Board on 19 February 2024.
Nicolette Henfrey Company Secretary
Strategic Report 2023 in review Demand continued to grow during 2023 as people’s appetite for travel shone through. Significant investments in our enterprise platform, including our brands, loyalty, digital offer and sustainability initiatives, saw us enrich the guest experience, grow our estate and drive returns. a Definitions for key performance measures can be found in the use of key performance measures and non-GAAP measures section, which can be found on pages 84 to 88. b Use of Non-GAAP measures: In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional financial measures (described IFRS or are adjusted as Non-GAAP) IFRS figures. are presented Further that explanation are used in internally relation by to these management measures as can key be measures found on to pages assess 84 performance. to 88, and reconciliations Non-GAAP measures to IFRS figures, are either where not defined they have under been adjusted, are on pages 226 to 231. c 2023 operating profit shown after $19m System Fund and reimbursable reported profit and $28m net exceptional gain. See page 154 for details. d 2022 share buyback completed in January 2023.
Our focus on building a stronger business for guests and owners, coupled with increasing demand, led to strong trading and shareholder returns delivered via our cash-generative business model. • Total dividend of 152.3c proposed and $750m share buyback completed. New $800m programme approved for 2024 • Americas RevPAR +7.0% vs 2022; EMEAA +23.7%; Greater China +71.7% • Surpassed 6,300 open hotels; +3.8% net system size growth • Signings +26% YOY*; grew conversions – represented 37% of openings and signings combined • Fee marginb 59.3%, 3.4%pts ahead of 2022 • $1,019m operating profit from reportable segmentsb, up 23% vs 2022 • Net cash from operating activities of $893m (2022: $646m), adjusted free cash flowb of $819m (2022: $565m) • Adjusted EPSb grew 33% to 375.7¢ • Elie Maalouf appointed Group CEO • Michael Glover appointed Group CFO • Refreshed corporate strategy to drive growth and long-term shareholder value * Excluding Iberostar Beachfront Resorts Owners choose to work with IHG based on trust in our brands, our ability to drive returns and the strength of our enterprise – underpinned by a focus on the cost to build, open and operate our hotels. • Enterprise contribution of ~80% of total room revenue (vs 72% three years ago), boosted by technology and channels enhancements • Launched new midscale conversion brand Garner • Guest How You Guest masterbrand campaign lifted awareness and brand favourability measures • Enhanced design, service and F&B • Launched new procurement programmes to reduce costs across hotel lifecycle • Guest Reservation System now enabling attribute upsell to drive revenue across estate; pilots launched for new revenue management system • IHG LIFT launched in US and Canada to support historically under-represented groups and further diversify owner base We focus on ensuring the services, technology and experiences we provide meet evolving expectations, increase consumer preference and loyalty, and drive bookings. • Guest Satisfaction Index continued to maintain a four-year high • Grew loyalty members to over 130m, with record enrolments and ~20% increase in Reward Nights vs 2022 • New partnerships providing access to music festivals and sporting events • Revenue driven by mobile app up 38% and downloads up 60% YOY • Websites covering 92% of open hotels redesigned and relaunched • Updated guest room and public space designs, F&B and service • Strengthened artificial intelligence capabilities to improve self-service guest offer • Over 60% increase in new co-brand credit card accounts YOY high-performance culture and focus on providing the tools, technology and working environment we need to succeed as individuals and as a business. • Employee engagement 87% (+1%pt on 2022). A Kincentric Global Best Employer • Rated 2nd on Financial Times Europe’s Diversity Leaders 2024 list; recognised as a top company for women by Forbes • Employee Resource Groups expanded to foster diverse and inclusive culture • Strengthened partnerships with US Historically Black Colleges to enhance early careers pipeline • IHG University launched to support development and drive performance • Extended conscious inclusion training to hotel colleagues • Launched Leading for Growth Executive Development Programme We aim to improve millions of lives within our communities by supporting disaster relief, tackling food poverty and providing skills training to help drive social and economic change. • More than 39,000 colleagues volunteered over 121,000 hours to support their local communities • Supported charities providing aid following 15 natural disasters • Expanded supplier diversity programme to build inclusion through supply chain • More than 30,000 participants received free access to skills and training through our IHG Academy offerings • Launched IHG Community Tracker to measure Journey to Tomorrow progress • Supported Global FoodBanking Network, which operates in nearly 50 countries We are committed to reducing carbon, waste and water usage so we can operate and grow with our owners in ways that minimise our impact on the planet. • 3.8% reduction in carbon emissions per occupied room since 2019; 1.9% absolute reduction against baseline • Introduced new energy conservation measures as brand standards • Expanded Community Solar to give more US hotels access to renewable energy • Launched collaborations with certification programmes so hotels can showcase their sustainability credentials to guests and corporate clients • Over 1,600 hotels accessed food waste training, with over 37,000 courses completed by managed and franchised colleagues • Launched Meeting for Good to provide more sustainable events
Strategic Report Chair’s statement in Significant recent years investment across every enterprise aspect platform of IHG’s has our competitive strengthened guests edge and and offer owners. for ” Deanna Oppenheimer Non-Executive Chair his has been another important year Tof progress for IHG Hotels & Resorts, characterised not only by excellent financial performance underpinned by strong guest demand and further growth with our owners, but also a smooth evolution of leadership and strategy that positions the business for an exciting next chapter. The backdrop to these achievements was one of travel demand ahead of 2019 in many markets and strong recovery in others, while the attractiveness of our brand portfolio saw the continued expansion of our footprint in high-value markets and segments. This has been achieved thanks to significant investment in recent years across every aspect of IHG’s enterprise platform to strengthen our competitive edge and offer for guests and owners. In what was my first full year as Chair, I have been impressed in my conversations with senior leadership, wider colleagues and on market visits with how the business works together to make this happen, with guests and owners central to every plan. I have also valued time spent meeting many owners who clearly appreciate this commitment to continuous improvement and delivering strong returns.
Leadership changes
Elie Maalouf became Group CEO on 1 July 2023, succeeding Keith Barr, who stepped down following more than 30 years with the business, including six as CEO. I would like to thank Keith for his outstanding contribution and leadership, which included growing IHG’s brand portfolio, strengthening its enterprise, embarking on a 10-year responsible business plan and helping the business navigate the Covid-19 pandemic with such agility, clarity and care.
We place great value on succession planning and talent development, and Elie brings significant industry experience and an excellent track record within the business. Having successfully led IHG’s Americas operations for eight years, where he oversaw record profits, growth of the region’s estate and the launch of new brands and formats, the Board was unanimous in its assessment that Elie was the best candidate for the job.
This was one of several leadership changes in 2023 that underlines the depth of talent at IHG, with Michael Glover replacing Paul Edgecliffe-Johnson as Chief Financial Officer, Jolyon Bulley becoming Americas CEO and Heather Balsley replacing Claire Bennett as Global Chief Customer Officer. Each individual brings industry expertise, a track record of excellent results and a deep understanding of IHG and its business, and I have great confidence in the leadership team delivering success on the next stage of IHG’s growth journey.
Importance of strategy
Elie is already instilling great passion and energy for using the strong enterprise platform established in recent years to realise the full growth potential of the Company. Central to this progress is having a clear ambition and effective strategy, and Elie has introduced refreshed versions of both to the business in 2023 to sharpen our focus on growth, succeed in a competitive marketplace and prioritise long-term value for all stakeholders.
The hotel industry brings joy like no other – connecting people and helping communities thrive. IHG and our hotels have a central role to play, united by a purpose of providing True Hospitality for Good for the benefit of all stakeholders. This purpose is embedded within our brands and culture and is therefore unchanged within our refreshed strategy. It also underpins our Journey to Tomorrow programme, which ensures our commitment to operate and grow responsibly across the environmental, social and governance (ESG) agenda is woven into the fabric of the business.
The Board fully supports the evolution of our strategy. It stays informed of how colleagues are engaging with business priorities and IHG’s wider culture through feedback forums, including the work of our designated Voice of the Employee Non-Executive Director and IHG’s Colleague HeartBeat survey.
Our purpose, ambition, strategy and behaviours are all being applied to an asset-light, fee-based, largely franchised business model. This remains a great strength of IHG, with a regional approach enabling flexibility by market, and high cash generation supporting enterprise investments across brands, loyalty and technology that enhance performance and drive growth, and also create surplus funds to return to shareholders.
During the year, important strategic progress was made on several fronts. Enhancements to IHG® One Rewards strengthened loyalty, we introduced new capabilities to our mobile app to enhance the guest experience and drive owner returns, and the launch of Garner™ added a 19th brand to our portfolio in a midscale segment with significant growth potential. A cornerstone of how we work with owners is helping them run an efficient business and new procurement programmes and brand prototypes were among key updates to strengthen operational and commercial support alongside close collaboration with the IHG Owners Association. Further steps were also taken towards our Journey to Tomorrow commitments across our people, communities and planet agenda.
The role of the Board
Amid a shifting global macro-economic landscape, the role of the Board has been to support and constructively challenge the Executive Committee (EC) around how we prioritise, manage risk, grow and generate future value. Focus areas spanned our approach to cybersecurity risk management – including emerging risks, such as the rise of artificial intelligence – how we optimise owner returns, and growth plans in the context of a competitive landscape.
To support IHG’s operations and growth aspirations, I place great importance on ensuring our Board represents a rich blend of backgrounds, expertise and experience that reflects the focus of the business and the evolving corporate landscape.
As part of clear succession plans, several Board changes took place during the year. Jo Harlow retired following nine years of excellent service, and we welcomed two new Independent Non-Executive Directors. Angie Risley joined in September, bringing a wealth of board and senior management experience from a career in HR spanning executive roles across sectors including hospitality, retail and banking.
Angie has succeeded Jo as Chair of the Remuneration Committee and joins the Responsible Business and Nomination Committees. Sir Ron Kalifa joined in January 2024, bringing many years of technology industry experience across strategy, sales, marketing and operations, and joins the Audit and Remuneration Committees.
Shareholder returns
Following a strong financial performance this year, I am pleased to announce the Board is recommending a final dividend of 104 cents per ordinary share, an increase of 10% on the final dividend for 2022. An interim dividend of 48.3 cents was paid in October 2023, taking the total dividend for the year to 152.3 cents, representing an increase of 10% on 2022. An additional $750m was also returned to shareholders through a share buyback programme (completed in December 2023), taking the total returns for the year to $1bn, and the Board has approved a further share buyback of $800m for 2024. The Board expects IHG’s business model to continue its strong long-term track record of generating substantial capacity to enable investment plans that drive growth, fund a sustainably growing ordinary dividend, and allow surplus capital to be returned to our shareholders.
Looking ahead, as a global business, we must remain alive to potential challenges created by political instability and conflict in parts of the world, but the industry has proven its resilience over many years and its future is a bright one. An expanding middle class in emerging markets, rising GDP, and consumer appetite to travel and stay in branded hotels all remain fundamental drivers of industry demand and future supply growth. With strong leadership, talented teams and a refreshed strategy focused on capitalising on the powerful enterprise we have created in recent years, I am confident in IHG’s ability to drive performance, growth and shareholder value.
There is real momentum in the business for the year ahead, and I’d like to thank all our colleagues for their hard work and dedication, and our owners for their continued confidence in IHG.
Deanna Oppenheimer
Non-Executive Chair
Strategic Report Chief Executive Officer’s review Q&A We talk to Elie Maalouf, Chief Executive Officer, about the Company’s performance and outlook Elie Maalouf Chief Executive Officer Q What have been the highlights since becoming Group CEO in July 2023? A It is an honour to lead this iconic company and one of many highlights so far has been getting even closer to our markets. I’ve really valued time spent meeting colleagues, owners and shareholders on visits across the world, seeing the relationships we have built, hearing first-hand what we are doing well, where we need to go further and how we can best work together to achieve shared success. IHG has enormous growth potential and I’m inspired by the passion of our teams and the power of their collaboration to drive performance and returns using the strong enterprise platform we have built in recent years. My predecessor, Keith Barr, played a major role in laying the foundation for an exciting chapter ahead, and I would like to take the opportunity to thank him on behalf of everyone at IHG. Q How did the Company perform in 2023? A Testament to the strength and scale of our brands and wider enterprise platform, I am proud to say we delivered an excellent financial performance alongside strong system size and pipeline growth. Very healthy average daily rate and occupancy pushed global RevPAR ahead of both 2022 and 2019 levels, with leisure leading
the way, and business travel and group activity improving steadily. The Americas continued its upward trajectory with RevPAR up 7.0% year-on-year, EMEAA was up by +23.7% following a strong performance in Continental Europe and the reopening of Japan, and Greater China increased by 71.7%, reflecting a strong rebound in demand following the lifting of pandemic restrictions.
That performance, coupled with fee margin growth and disciplined cost management, helped drive operating profit to more than $1bn for the first time. We returned $1bn to shareholders through ordinary dividend payments and a $750m share buyback programme, and a new $800m share buyback programme for 2024 has been approved.
Our brands continued to grow around the world, too. We opened 275 hotels, contributing to net system size growth of 3.8%, and signed another 556 properties into our global pipeline, which now stands at 2,016 hotels – or 32% of today’s system size. Notably, our openings and signings performance in Q4 was one of our biggest ever for development activity.
We can be proud of this performance alongside all we have done to strengthen our business further on multiple fronts for guests and owners. On behalf of the Executive Committee, I would like to thank all our hotel and corporate teams for delivering this excellent performance, and our owners for their continued commitment to IHG.
Q How has IHG’s strategy changed since you became Group CEO?
A Our strategy needs to constantly evolve in this dynamic industry. Having added eight brands to our portfolio in the past six years and made big investments in the enterprise platform that supports them, it was important to reassess how IHG capitalises on what we have built to unlock and drive growth in a competitive landscape.
Our purpose of True Hospitality for Good remains unchanged and is something that resonates strongly across the organisation, in our communities and with those we work with. However, our strategy has evolved, starting with a simpler ambition that sharpens our focus on what is central to accelerating growth: being the hotel company of choice for guests and owners. We have also refreshed our strategic pillars and looked carefully at the behaviours we need to deliver them successfully. Relentless Focus on Growth establishes a targeted approach to expanding our brands in high-value markets; Brands Guests and Owners Love shows our explicit intention to deliver for both; Leading Commercial Engine recognises the importance of investing in the technology and tools that
drive commercial success and make the biggest difference to guests, owners and hotel teams; and Care for our People, Communities and Planet remains unchanged and in step with our Journey to Tomorrow plan. These elements combined are designed to drive us further and faster towards realising IHG’s full growth potential.
Q What strategic progress was made in 2023?
A We advanced on multiple fronts, strengthening our ability to capture guest demand, deepening loyalty, and driving returns and new growth opportunities with our owners.
Our Holiday Inn Brand Family’s enduring appeal saw it generate 38% of openings and signings in the year. We continued to diversify our exposure to different segments, with our Luxury & Lifestyle brands now representing 14% of our system size and 22% of our pipeline – around twice the size it was five years ago. Almost a quarter of signings globally were in this high-fee segment, and flagship openings included the Regent® Hotels Carlton Cannes and Shanghai on The Bund.
We also continued to expand our offer in other areas where we see strong demand and growth opportunities. We launched our conversion brand Garner in the midscale segment – worth $14bn today in the US alone. Our first two hotel openings and seven signings were achieved within months of launch in the US, and the brand is already now heading for Japan and Mexico. All our newer brands are gaining traction, with the seven launched or acquired in recent years – not including Garner or our commercial agreement with Iberostar – now accounting for 16% of our pipeline. Conversions also remain an important focus for us across all segments, reaching record levels of 37% of openings and signings combined.
Looking across the enterprise more broadly, IHG One Rewards members booked more than 55% of our room nights globally in 2023, and in what was a record year for enrolments, the programme has now grown to more than 130 million members. Our mobile app generated 38% more revenue in 2023 on the back of fresh updates to personalise the guest experience and grew downloads by 60% year-on-year. Collectively, the impact of these investments and more are creating increasing value for our owners, with enterprise contribution rising from 72% to almost 80% in the past three years. At the same time, we have kept guest satisfaction at a four-year high and we remain focused on working closely with our owners to reduce the cost to build, open and operate our hotels.
As we strengthen the business, it is important we do so responsibly for our people and the world around us. Maintaining an inclusive, engaging culture is vital to our success, so seeing IHG once again named a Kincentric Global Best Employer was a special moment. We continued to support our communities by responding to natural disasters, creating opportunities for people to learn new skills in our industry, and making a positive difference to thousands of people during Giving for Good month. We also took further steps to reduce our environmental impact in several areas, including incorporating more energy conservation measures into brand standards, educating colleagues on food waste and delivering more sustainable events for corporate clients.
Q How do you see the future of the hotel industry?
A The long-term prospects for our industry are very attractive when you consider global population growth, rising middle classes and prosperity in emerging markets, and people’s inherent desire to travel. Oxford Economics is forecasting the number of global hotel room nights consumed to grow annually at an average rate of +4.0% from 2023 through to 2033.
In the Americas, the world’s biggest tourism market, where IHG has almost 4,500 hotels, industry forecasts expect room nights to increase from 2.3 billion to 3.0 billion by 2033. In Greater China, where we strengthened our position as the leading international hotel company this year with the opening of our 700th hotel, an extra 660 million room nights are forecast over the same period. Meanwhile, across EMEAA, there is growing travel demand across key markets, from Asia and the Middle East to Europe. This landscape underpins global net new supply growth for our industry. Over the past decade, supply has grown annually at an average rate of 2.4% and it is expected to continue at a similar rate into the future.
These fundamentals and the outlook have remained strong through varying economic cycles, and so while as a global business we must always remain agile in an evolving macro-economic landscape, we look forward to an important next chapter of growth for IHG and value creation for our owners and shareholders.
Elie Maalouf
Chief Executive Officer
Strategic Report Industry overview We operate in an industry with high growth potential, underpinned by strong long-term fundamentals. he global hotel industry continued Tto strengthen in 2023, benefitting from further consumer appetite for leisure stays and a robust return of business demand, which together drove record RevPAR levels. The $700 billion hotel industry has compelling structural growth drivers, underpinned by factors including the inherent needs and desires to travel for business and leisure purposes, population growth, and an expanding middle class in emerging markets with increasing disposable incomes. Spend on travel continues to be among the most resilient of discretionary areas for consumers, while demand for business travel remains robust, with hotels adapting to support flexible working trends in the post-Covid-19 environment. Although there are uncertainties within the wider economic outlook, we anticipate a number of tailwinds persisting through 2024, including further progress in returning to pre-Covid-19 levels of demand for group travel to meetings and events, as well as the ongoing recovery of travel demand to and from Greater China as international flight capacity continues to increase. In what is a relatively fragmented sector, with 56% of rooms affiliated with a global or regional chain, competitor pressures in the branded space remain intense as all major players pursue growth strategies through a combination of organic growth, partnership arrangements and acquisitions. Branded hotel penetration has steadily increased as a long-term trend, with this expected to continue to grow as consumers look to trusted brands to meet their evolving expectations, particularly when it comes to state-of-the-art technology and the skills, scale and resources required to provide guests with enjoyable, effective and sustainable stays. While there have been short-term challenges impacting the completion and opening of new-build hotels, primarily driven by the cost and availability of financing, there remains a long-term need for new hotel supply to satisfy the demand drivers previously mentioned. Global hotel room net new supply increased at a CAGR of 2.4% over the 10 years from 2013 to 2023, with industry forecasts showing a similar rate across the next five years. Cost remains a significant barrier to building a scale position in the global hotel industry, whether that’s due to investment to build and maintain the properties, establish strong loyalty programmes and technology platforms, or to develop and market leading brands. Hotel owners affiliated with a major global brand and enterprise system also tend to generate higher returns. The hotel industry is cyclical: long-term fluctuations in RevPAR tend to reflect the interplay between industry demand, supply and the macro-economic environment. At a local level, political and economic factors, as well as those such as terrorism, oil market conditions and significant weather events, can also impact demand and supply. While the potential for macro-economic challenges from factors such as persistent inflation, higher borrowing costs and geopolitical flashpoints create some ongoing uncertainty in 2024, the attractive industry fundamentals that led to the sector outpacing global economic growth in 19 out of 24 years between 2000 and 2023 remain very firmly in place for the long term. As a global business, with a footprint in over 100 countries, operating in the midst of change and uncertainty is something IHG is very used to and it continues to be one of our greatest strengths. Our strategy of developing a strong brand portfolio and an industry-leading loyalty programme, together with our fee-based income streams and prevalent midscale positioning, means we remain resilient through varying economic cycles. The hotel industry has attractive tailwinds… US disposable personal income grew on average by 1.6% per annum between 2000 and 2023 Source: Federal Reserve Economic Data (FRED) Globally, middle income consumers spent $44tn in 2020, with this expected to increase to $62tn by 2030 Source: The Brookings Institution Global hotel room net new supply grew 2.4% per annum between 2013 and 2023 Source: STR
The top five hotel groupsa have increased their market share Share of top five branded hotel groups as % of global rooms supply
a Includes IHG, Marriott International, Inc., Wyndham Hilton Worldwide Hotels & Holdings Resorts Inc. Inc.,, Accor S.A. Source: STR
With share expected to further expand Branded share of global industry supply and share of global industry active pipeline Source: STR Consumers value loyalty membership, which requires a large-scale enterprise to deliver 76% Of consumers are more likely to recommend brands with good loyalty programmes Source: Bond, in partnership with Visa 81% Of consumers are more likely to use a brand if they are members of its loyalty programme Source: Bond, in partnership with Visa Global hotel revenues have outpaced GDP growth, and are now ahead of pre-Covid-19 levels Global industry revenue vs global GDP, indexed to 1999 Branded hotel business models There are two principal business models: Asset-heavy models generate returns on the real estate and centralise control over operations. Asset-light models typically enable faster growth and generate higher returns. This model tends to present lower risk to fluctuations in the economy.
Strategic Report Our business model We predominantly franchise our brands and manage hotels on behalf of third-party hotel owners. While we will continue to have a weighting towards Essentials, our pipeline shows an increasing proportion of growth in the Premium and Luxury & Lifestyle segments, as well as a more even geographical spread. a Includes Iberostar Beachfront Resorts, which joined IHG’s system and pipeline as part of a long-term commercial agreement. he growth of our business relies Ton two fundamental drivers: increasing revenue per available room (RevPAR) and expanding the number of rooms in our system. RevPAR indicates the value guests ascribe to a given hotel, brand or market, and grows when they stay more often or pay higher rates. Room supply also reflects capturing structural growth drivers of increasing demand to travel and experience, as well as how attractive the hotel industry is as an investment from an owner’s perspective. To drive growth, we have a portfolio of 19 brands across more than 100 countries in the Luxury & Lifestyle, Premium, Essentials, Suites and Exclusive Partners categories. Supported by a leading loyalty programme and powerful technology, our brands meet clear guest needs and generate strong returns for our owners, which in turn attracts further hotel investment and grows our system size. IHG is an asset-light business, and our focus is on growing fee revenues and fee margins, which we can do with limited capital requirements. This enables us to grow and invest in our business while generating high returns on invested capital and strong cash flow. We generally franchise or manage hotels, with the decision largely driven by market maturity, owner preference and, in certain cases, the particular brand. Hotels in the Essentials category tend to be franchised, while Luxury & Lifestyle hotels are predominantly managed. Our broad geographic spread and weighting towards essential business and domestic leisure has driven comparative resilience during times of economic downturn. Although this continues to be a core component of our business, we have made excellent progress in expanding our presence in the Luxury & Lifestyle segment, which generally generates higher fees per room. This category is currently 14% of IHG’s system size, though comprises 22% of the future growth pipeline. Our asset-light business model means we do not employ colleagues in franchise hotels, nor do we control their day-to-day operations, policies or procedures. That being said, IHG and our franchise hotels are committed to delivering a consistent brand experience, conducting business responsibly and sustainably so that we deliver our purpose of providing True Hospitality for Good.
How we generate revenue Owned, leased and Third-party owners pay managed lease hotels Fees to IHG in relation to the licensing Assessments and contributions For the small number of hotels of our brands and, if applicable, hotel that are collected for specific use (representing <1% of our system size) management services. within the System Fund, as well as that we own or lease, we record the reimbursable revenues. entire revenue and profit of the hotel in our financial statements. System Fund and IHG fee revenue reimbursable revenues 2023: 2023: $2,164m $2,460m Franchised hotels System Fund We receive a fixed percentage of rooms IHG manages a System Fund for the revenue when a guest stays at one of benefit of hotels within the IHG system our hotels. This is our fee revenue. and their third-party owners, who pay contributions into it. This includes a RevPAR X Rooms X Royalty rate marketing and reservation assessment Managed hotels and a loyalty assessment. We generate revenue through base The System Fund also benefits from management fees and incentive proceeds from the sale of IHG One management fees. Rewards points under third-party Fixed % of total hotel revenue as a co-branding arrangements. management fee and typically a share Given the significant scale of the of hotel gross operating profit after System Fund, IHG can make substantial deduction of management fees investments in marketing brands, Exclusive partners creating a leading loyalty programme We receive marketing, distribution, and powerful technology, including technology and other fees for providing revenue management systems, thereby access to our enterprise platform. strengthening the IHG enterprise. Fee streams similar to our The System Fund is not managed to asset-light model a profit or loss for IHG over the longer term, but for the benefit of hotels in the Revenue attributable to IHG comprises: IHG system, and comprises: • Fee business revenue from • Assessments and contributions paid reportable segments: by hotels. – Franchise fees • Revenue recognised on consumption – Management fees of IHG One Rewards loyalty points. – Commercial agreement fees Reimbursable revenues – Central revenue (principally In a managed property, the Group technology fee income) typically acts as employer of the general manager and, in some cases, • All revenue from owned, leased and other employees at the hotel, and is managed lease hotels. entitled to reimbursement of these See page 85 for more information. costs. The performance obligation is satisfied over time as the employees perform their duties, consistent with when reimbursement is received. See page 66 for more information. Our business model IHG | Annual Report and Form 20-F 2023 11
Our business model continued
How we drive operating profit
Our asset-light business model requires a limited increase in IHG’s own operating expenditure to support our revenue growth, which delivers operating profit and fee margin growth.
The benefit of operational efficiencies, along with brands and markets becoming more mature, supported fee margin expansion of around 130bps a year between 2009 and 2019 in total for IHG.
For franchised hotels, the flow through of revenue to operating profit is higher than it is at managed hotels, given the fee model and our well-invested scale platform where limited resources are required to support the addition of an incremental hotel. This is most evident in our Americas region, where fee margins are the highest, reflecting our scale and over 90% of our hotels operating under our franchised model.
Across our managed hotels, the flow through of revenue to profit can be lower, given higher operating expenditure on operations teams supporting the hotel network.
a Use of Non-GAAP measures: In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional financial measures (described as Non-GAAP) are presented that are used internally by management as key measures to assess performance. Non-GAAP measures are either not defined under IFRS or are adjusted IFRS figures. Further explanation in relation to these measures can be found on page 84 to 88 and reconciliations to IFRS figures, where they have been adjusted, are on pages 226 to 231.
Our owned, leased and managed lease hotels tend to have significantly lower margins than our fee business. This is because we not only record the entire revenue of the hotel, but also the entire cost base, which includes staff and maintenance of the hotel.
Capital allocation and dividend policy
Consistent uses of generated cash
Our priorities for the uses of cash are consistent with previous years and comprise three pillars:
1
Invest in the business to drive growth
We look to strategically drive growth, while maintaining strict control on investments and our day-to-day capital expenditures.
2
Target sustainable growth in the ordinary dividend
IHG has a dividend policy where we would look to grow the ordinary dividend each year, while balancing all our stakeholder interests and ensuring our long-term success.
3
Return surplus capital to shareholders
The Board expects our asset-light model to provide the opportunity to routinely return additional capital to shareholders such as through share buybacks.
Capital expenditure
Spend incurred by IHG can be summarised as follows:
Type
What is it?
Recent examples
Maintenance capital expenditure is devoted to the maintenance of our systems and corporate offices, along with our owned, leased and managed lease hotels.
Key money is expenditure used to access strategic opportunities, particularly in high-quality and sought-after locations, when returns are financially and/or strategically attractive.
Examples of maintenance spend include investment in corporate technology and software, as well as office refurbishment and maintenance. Across our owned, leased, and managed lease hotels we invest in refurbishment of public spaces and guest rooms.
Examples of key money include investments to secure representation for our brands in prime locations.
Recyclable investments to drive the growth of our brands and our expansion in priority markets
Recyclable investments are capital used to acquire real estate or investment through joint ventures, equity capital, or loans to facilitate third-party ownership of hotel assets. This expenditure is strategic to help build brand presence.
We would look to divest these investments at an appropriate time and reinvest the proceeds across the business.
Examples of recyclable investments in prior years include our EVEN Hotels brand, where we used our capital to develop three hotel properties in the US to showcase the concept. These hotels were subsequently sold and now operate under a franchise agreement. More recently, recyclable investments have included the initial purchasing of sites for the Six Senses brand to be developed in key markets in the US.
System Fund capital investments for strategic investment to drive growth at hotel level
The development of tools and systems that hotels use to drive performance. This is charged back to the System Fund over the life of the asset.
We continue to invest in a range of upgraded technology solutions, including the ongoing development of IHG’s mobile app and IHG One Rewards loyalty evolution.
Dividend policy and shareholder returns
The Board consistently reviews the Group’s approach to capital allocation and seeks to maintain an efficient balance sheet and investment-grade credit rating. IHG has an excellent track record of returning funds to shareholders through ordinary and special dividends, and share buybacks. The ordinary dividend paid to shareholders increased at an 11% CAGR between 2004 and 2019, and at a 10% CAGR after resuming dividend payments at the end of 2021.
Our asset-light business model is highly cash generative through the cycle and enables us to invest in our brands and strengthen our enterprise. When reviewing dividend recommendations, the Board looks to ensure that any recommendation does not harm the sustainable success of the Company and that there are sufficient distributable reserves to pay any recommended dividend. The Board assesses the Group’s
ability to pay a dividend bearing in mind its responsibilities to its stakeholders and its objective of maintaining an investment-grade credit rating. One of the measures we use to monitor this is net debt:adjusted EBITDA and we aim for a ratio of 2.5-3.0x.
$500m of surplus capital was returned via a buyback programme announced in August 2022 and then a further $750m via a subsequent programme over the course of 2023. The highly cash-generative nature of our business model means we expect to have substantial ongoing capacity to return further surplus capital to shareholders, such as through share buybacks, as we look to move leverage into our target range over time.
The Board intends to continue sustainably growing the ordinary dividend and to typically pay dividends weighted approximately one-third to the interim and two-thirds to the final payment.
In February 2023, IHG’s Board proposed a final dividend of 94.5¢ in respect of 2022, representing growth of 10% on that for 2021. The proposal was subsequently approved at the AGM and paid to shareholders on 16 May 2023.
In August 2023, IHG’s Board declared an interim dividend of 48.3¢ per share, representing growth of 10% on 2022’s interim dividend. This was paid to shareholders on 5 October 2023.
The Board is proposing a final dividend of 104.0¢ in respect of 2023, representing growth of 10% on that for 2022. The proposed total dividend for the year is therefore 152.3¢. Further, the Board have approved a share buyback programme to return an additional $800m of surplus capital in 2024. Given expectations for growth and EBITDA in 2024, leverage is expected to be around the lower end of our target range of 2.5-3.0x.
Strategic Report Trends shaping our industry Over the past few years, the travel and tourism industry has demonstrated its enduring importance for millions globally. Despite the backdrop of short-term macro pressures and uncertainty, consumers continue to value and feel passionately about travel, with surveys indicating it to be among the most resilient of discretionary spending areas. As we look to 2024 and beyond, we are seeing the evolution of several trends and travel habits that are likely to strengthen in our industry over the coming years. The rebound in business travel has reignited another trend – blended travel, where business and leisure are combined into one stay, by either taking the time to explore the local destination during a business or work trip, or by adding a holiday onto the beginning or end of a business trip or conference. A shift to remote working in recent years is contributing to the rise in popularity of blended travel. According to a 2023 survey by the Global Business Travel Association (GBTA), business travellers are blending business and personal travel more frequently than they did in 2019. Additionally, guests are increasingly extending their trips, with 42% of travellers adding leisure stays to their business trips in 2023 and 79% staying at the same accommodation for business and leisure portions of their trip. Blended travel is set to become more popular in the coming years, with Euromonitor forecasting that global spend by travellers combining business and leisure will more than double by 2027 compared with 2021. Alongside blended travel, the growth in popularity of co-working can provide an opportunity for hotels to reimagine under-used spaces and appeal to new guests, particularly younger generations, and attract the local population. Our responses include: • Continuing to roll out the innovative Open Lobby for Holiday Inn® in new markets, which gives guests and visitors a welcoming space to relax, work or socialise. • Launching new concepts such as Meetings Without Boundaries for Crowne Plaza® Hotels & Resorts to capitalise on the rising demand for flexible meetings and gatherings. • Expanding our portfolio of extended stay properties across our Suites collection, including Candlewood Suites® and Staybridge Suites®, to offer guests an unparalleled extended stay experience.
2 Increasing focus on sustainability 3 Technology enhancing guest experiences Guests and organisations are increasingly focused on the environmental impact of their travel. A study by the World Travel and Tourism Council (WTTC) revealed that 75% of travellers are looking to choose sustainable travel in the future, while 59% have chosen some form in recent years. Business customers are also increasingly paying closer attention to sustainability, with 92% of business travel professionals stating it is a priority for their organisation, according to a recent survey by GBTA. This trend is set to strengthen, with increased public scrutiny, more media coverage, and stricter reporting rules leading to more companies reporting on their GHG emissions. As sustainability concerns grow, guests are expected to choose companies prioritising sustainable practices. However, according to a Boston Consulting Group (BCG) study, 10% of consumers currently prioritise sustainability as a top driver of choice when making travel purchasing decisions. Travel companies must continue collaborating to establish shared frameworks that enable guests to easily access and act on sustainability information – for example, improving booking tools to display relevant sustainability details across the travel ecosystem. Technology is redefining the travel experience, from helping inspire guests for their next trip to customising their in-room stay experience. Guests increasingly rely on digital technology, such as social media, web searches and online reviews, for inspiration and information. In fact, 75% of travellers say they have been inspired to travel to a specific destination by social media, while 48% want to travel to destinations that will allow them to ‘show off on social media’, according to a survey by American Express Travel. According to Deloitte research, hotels are among the most popular categories of personalisation among customers (47%) and many customers are willing to pay more for a customised product or service. This includes booking a room with a view or more space or being able to stream content from their devices to their in-room TV. Hotel companies are also continuing to leverage advances in artificial intelligence (AI), machine learning (ML) and analytics to create more personalised and targeted experiences for guests, and to help inform marketing, customer service and revenue forecasting. Our responses include: • Progressing towards our Science-Based Target (SBT) through initiatives such as driving energy efficiency across our existing hotels, facilitating access to renewable energy opportunities and developing plans for new-build hotels that operate at low carbon. • Supporting hotels with the launch of the new Meeting for Good sustainable meetings programme and by facilitating access to leading third-party sustainability certification programmes. • Playing an active role in cross-industry conversations focused on driving visibility, alignment and clarity in sustainability initiatives relevant to travellers, including corporate customers. See pages 33 to 35, and 52 to 59, for more information. See our Responsible Business Report (RBR) ihgplc.com/responsible-business/reporting Our responses include: • Launching IHG® Wi-Fi Auto Connect to allow members to connect to the hotel’s wi-fi automatically, seamlessly and securely upon arrival. • Launching a next-generation IHG mobile app to give our guests more choice and unlock the benefits of our transformed IHG One Rewards loyalty programme. • Rolling out the ability to upsell unique room attributes across the estate, enabling a more seamless and personalised booking experience. ® See pages 22 to 23, 26 to 27, and 36, for more information.
Strategic Report A for brand everyone Our focus on having a diverse selection of brands has transformed our portfolio, enabling us to meet the needs of a broader range of guests and owners, while growing our estate to more than 6,300 hotels globally. The demand for branded players continues to drive fresh opportunities to reach scale in high-growth markets, as guests seek new experiences and owners look for more ways to grow with us. This year, we launched our 19th brand, Garner. Designed for the midscale conversion space and complementing our new-build brand avid™, its arrival signals our intent to establish an industry-leading presence in midscale, just as we have in upper midscale with our iconic Holiday Inn Express® and Holiday Inn brands. Accounting for 37% of openings and signings combined globally in 2023, conversions continue to grow in importance and Garner strengthens our offer by giving owners quick access to IHG’s scale, enterprise platform and loyalty programme. We also continue to diversify the mix of our estate, with our Luxury & Lifestyle brands increasing our exposure to high-fee income segments. IHG is now one of the industry’s biggest players in this segment, with Luxury & Lifestyle collectively representing 22% of our pipeline – around twice the size it was five years ago. To support the growth of all our brands, we continue to invest in our enterprise, including our digital channels, a transformed IHG One Rewards loyalty programme and a powerful marketing campaign behind our IHG Hotels & Resorts masterbrand to grow awareness of our brands and drive demand to our hotels.
MASTERBRAND AND LOYALTY LUXURY & LIFESTYLE 25 open 10 open 222 open 11 open 78 open 153 open 42 pipeline 11 pipeline 100 pipeline 18 pipeline 54 pipeline 132 pipeline PREMIUM 62 open 20 open 408 open 26 open 74 pipeline 25 pipeline 126 pipeline 33 pipeline ESSENTIALS 3,171 open 1,202 open 2 open 67 open 632 pipeline 246 pipeline 5 pipeline 141 pipeline SUITES 2 open 325 open 30 open 376 open 41 pipeline 164 pipeline 2 pipeline 151 pipeline EXCLUSIVE PARTNERS 49 open 5 pipeline IHG system size includes 124 other and unbranded hotels, of which eight will be rebranded to voco and five will be rebranded to Vignette Collection. IHG pipeline includes 14 other and unbranded hotels. A brand for everyone IHG | Annual Report and Form 20-F 2023 17
Strategic Report Our strategy In 2023, to further strengthen our ability to drive future growth, we evolved key elements of our strategy, including our ambition, strategic pillars and growth behaviours. hese changes build on the investments we have made to transform our business Tin recent years, where we have expanded Our strategy our portfolio from 11 to 19 brands and significantly strengthened our enterprise. This includes a transformed IHG One Rewards loyalty programme, refreshed masterbrand, new partnerships and WHAT WE DO an enhanced web and mobile offer, as well as Provide True Hospitality for Good embarking on our Journey to Tomorrow to invest in our people, bring positive change in our communities and deliver more sustainable hotels. WHY WE DO IT Our purpose of True Hospitality for Good remains at the To be the hotel company of choice heart of our brands and culture and is therefore unchanged, but as an organisation, we have simplified our ambition for guests and owners to focus on what is central to accelerating growth: being the hotel company of choice for guests and owners. To make it happen, we have fine-tuned our strategic HOW WE MAKE IT HAPPEN pillars and introduced new behaviours to sharpen our mindset for success and accelerate our growth by capitalising on what we have built. Over the long term, with disciplined execution, our strategy drives the growth of our brands in high-value markets. RELENTLESS BRANDS GUESTS It creates value for all our stakeholders and delivers FOCUS ON GROWTH AND OWNERS LOVE sustained growth in cash flows and profits, which can be reinvested in our business and returned to shareholders. LEADING CARE FOR COMMERCIAL OUR PEOPLE, ENGINE COMMUNITIES AND PLANET OUR GROWTH BEHAVIOURS AMBITIOUS DEDICATED COURAGEOUS CARING
Strategic overview Relentless focus Brands guests on growth and owners love We are accelerating the global growth of our brands We are focused on delivering tailored services and on the back of a transformed portfolio that’s giving solutions to meet the expectations of guests and owners. our guests and owners more choice across segments. In 2023, this included strengthening guest benefits for In 2023, we launched our midscale conversion brand IHG One Rewards, building awareness of our masterbrand Garner, grew and strengthened both new and existing and reducing costs for owners. brands, and extended our presence in Luxury & Lifestyle. See pages 22 to 25. See pages 20 to 21. 275 4 Hotels opened in 2023 Our Guest Satisfaction Index continued to maintain a four-year high Leading Care for our people, commercial engine communities and planet We invest in the tools, technology and solutions that make With more than 6,300 hotels in our global estate, it’s vital the biggest difference for guests and owners. In 2023, the that as we grow, we do so responsibly and sustainably growth of IHG One Rewards membership at a record rate for our communities, the environment and the long-term and strengthened enterprise contribution were among key success of our business. In 2023, we made significant strategic highlights. progress in investing in our people and culture, bringing positive change to our communities and delivering more See pages 26 to 27. sustainable hotels. See pages 28 to 35. ~80% >30,000 Participants received free access to skills and training through Enterprise contribution, up from 72% three years earlier our IHG Academy
Strategic Report Our strategy continued PRIORITY: e have grown our portfolio from 11 to 19 brands in just six years Walongside significantly investing Relentless in the quality of our existing ones to fuel demand from owners and guests globally. This transformed portfolio is increasing the focus on breadth of our offer across every segment. Supporting our brands is a sharper, stronger enterprise, including our award-winning IHG One Rewards loyalty programme, growth masterbrand and a transformed web and mobile experience. Our focus is on using what we have built to grow our brands at pace in high-value markets and segments around the world. 2023 AT A GLANCE What we achieved in 2023 Surpassed We opened 275 hotels in 2023 to surpass 2,016 6,300 globally and signed another 556 to 6,300 our pipeline, taking it to 2,016 hotels. Our Q4 Pipeline hotels, equivalent openings and signings performance was one Open hotels globally to 32% of today’s system size of our biggest-ever quarters for development activity, while across the year we saw 31 hotel openings represent a debut in a new country >40% 37% for a particular IHG brand. The enduring appeal of our heritage brands Of global pipeline Of openings and was seen in Essentials, where our Holiday under construction signings combined Inn Brand Family generated 38% of hotel were conversions openings and signings globally, and in Premium, where Crowne Plaza reached 534 open and pipeline hotels, supported Garner becomes Hotel openings by a modernised Americas estate and IHG’s 19th brand 31representing a debut growth in markets such as Greater China, in a new country for where it is the leading upscale brand. a particular IHG brand To unlock the growth potential of what is already one of the industry’s biggest Luxury & Lifestyle portfolios, we made organisational
changes to ensure central support teams and regional colleagues work together to create offers tailored to local market priorities. We reached 150 openings and signings in this segment in 2023, including the first Vignette™ Collection in the Americas and the return of InterContinental® Hotels & Resorts to Rome – one of 37 openings and signings for the brand as its pipeline reached 100 hotels for the first time. With properties secured in more than 20 countries, the rapid global expansion of Kimpton® Hotels & Restaurants continued, including a debut signing in Saudi Arabia. The iconic Regent Carlton Cannes was among several halo properties showcasing key brand hallmarks in what was a strong year for the brand, where other flagship openings included Shanghai on The Bund. Six Senses® Hotels, Resorts & Spas reached a landmark 25th property, with the opening of the Southern Dunes, The Red Sea in Saudi Arabia, while a debut opening in Sydney was among 42 openings and signings for Hotel Indigo®.
Underlining the pace and scale of our progress, our six Luxury & Lifestyle brands now collectively represent 22% of our rooms pipeline – around twice the size of five years ago. In November, 31 Luxury & Lifestyle properties were awarded Condé Nast Traveler’s Readers’ Choice Awards – 10 more than the previous year.
Our strategic focus on accelerating conversion deals continued to drive growth. They reached record levels in 2023, comprising 37% of openings and signings combined, thanks to our work to increase the breadth of our portfolio and strengthen our enterprise for owners looking for fast access to our scale and systems.
To further accelerate our growth, we launched our new Essentials midscale conversion brand, Garner, to complement our new-build avid hotels brand in the space. Garner gives guests one-of-a-kind trusted stays at a lower price point and serves demand from hotel owners to convert to an IHG brand and quickly benefit from access to our enterprise platform, including our revenue-generating systems, distribution channels and loyalty programme that support performance, increase efficiencies and drive returns. Since becoming franchise-ready in the US in September, Garner rapidly achieved its first seven signings and two openings by the end of the year. The brand will also head to other markets in 2024, including Mexico and Japan. We expect Garner to reach an estate of over 500 hotels over the next 10 years and 1,000 hotels over the next 20 years.
Strong progress with newer brands continued. Celebrating its fifth birthday, avid reached 67 open hotels, including its first in New York, while Atwell Suites™ grew its pipeline to 41. To support demand in the US, we are educating lenders about the performance, revenue opportunities and return on investment of these two brands and have provided owners with ground-break incentives to speed up building time. Also continuing its growth trajectory, Vignette Collection has now secured 29 Luxury & Lifestyle properties in two years since launch, while fast-growing Premium brand voco™ hotels achieved debut openings in Japan and Vietnam on the way to reaching 136 open and pipeline hotels. In our Exclusive Partners category, 49 out of up to 70 Iberostar Beachfront Resorts properties were added to IHG’s system to capitalise on the growing demand for resort and all-inclusive stays.
Specifically in Greater China, we surpassed 700 open hotels in 2023. The pace of development activity has increased since we introduced our franchising model a few years ago as part of a shift away from a more managed estate. This model is now available across Holiday Inn Express, Holiday Inn, Crowne Plaza, EVEN™ Hotels and voco, and by the end of 2023 had contributed to 38% of our open estate and more than 50% of our pipeline in the region.
What’s to come
We have grown our development pipeline to more than 2,000 hotels, the equivalent of 32% of today’s system size. This, coupled with key investments in our enterprise, sets the stage for sustainable system size growth in the years ahead.
Crowne Plaza Utrecht – Central Station, the Netherlands
Our focus areas include extending the leadership of our Essentials brands, such as Holiday Inn and Holiday Inn Express, in major markets by building on our work to optimise the cost to build, open and operate.
We will speed up conversion deals to capitalise on owner demand and growth opportunities, including taking Garner to scale quickly in the midscale segment. We will also work closely with owners to continue expanding other newer brands, such as avid and Atwell Suites, as part of a more comprehensive owner engagement strategy designed to accelerate building and ramp-up for new hotels across our estate.
In Luxury & Lifestyle, we will focus on asserting our leadership of this higher-fee space by embedding our growth strategy and new operational approach, as well as expanding our branded residences offer.
The first Garner Hotel officially opened in Auburn, Washington in the US on 18 December, 2023
Strategic Report Our strategy continued PRIORITY: Brands guests and ur success relies on putting our guests and owners at the heart Oof everything we do to ensure our business and brands stand out as owners love the preferred choice for exceptional experiences and strong returns. What we achieved in 2023 2023 AT A GLANCE With strong demand around the world pushing RevPAR 16% ahead of 2022 levels and almost 11% up on 2019, we are greeting Extended reach of New procurement guests with fresh experiences, enhanced Guest How You Guest programmes service and the latest technology to meet campaign, lifting enabling owners evolving expectations. awareness and brand to benefit from Our IHG One Rewards programme plays favourability measures IHG’s scale a key role in capturing guest demand. Since transforming our loyalty offer in 2022, we have scaled its benefits, making Food Guest Satisfaction Index & Beverage Rewards redeemable at more maintained at than 5,900 hotels globally and increasing a four-year high Reward Nights by around 40% since 2019. The programme continues to gain notable IHG One Rewards loyalty industry recognition, too, including winning programme members seven Freddie Awards in 2023, the most have grown to Advocated for our owners prestigious member-generated awards in and industry through the travel loyalty industry. collaboration with >130m governments and Our mobile app supports access to IHG One trade bodies Rewards and this year we have continued to enhance its capabilities alongside creating easier-to-navigate brand websites. These are at the heart of a smoother, richer customer
booking journey that features several stay enhancements, including the upsell of unique room attributes, where guests can seamlessly select add-ons and tailor their stays.
Our technology continues to improve customer service, with innovations being made through artificial intelligence (AI) that are providing a more intuitive guest experience for our Digital Concierge chatbot service. Speech AI is dealing with reservation conversations, we continue to roll out IHG Voice to automatically handle calls in hotels to reduce the burden on busy teams and our 24/7 asynchronous service is enabling guests to resolve their queries with reservations and customer care agents via chat. With the growth in AI capabilities and IHG’s scale investment, we have already increased end-to-end AI-led customer self-service by 53% in 2023 compared with a year earlier, with the potential for this to continue growing and driving additional cost-efficiency and effectiveness for our owners, as well as further increases in guest satisfaction.
We have also introduced further enhancements on property. This includes a next-generation payments system speeding up check-in and reducing fees for owners at more than 3,800 hotels in the US and Canada and the rollout of IHG Wi-Fi Auto Connect to connect IHG One Rewards members to hotel wi-fi automatically.
Key updates to our brands included an upgraded breakfast for Holiday Inn in the US and Canada with streamlined labour costs, a vibrant new service culture for InterContinental to drive performance and growth, and improved breakfast and design for Holiday Inn Express in Greater China.
The work we are doing in collaboration with our owners and hotel teams is making a difference for guests, with our Guest Satisfaction Index, which measures our outperformance against peers, continuing to maintain a four-year high.
For corporate guests, we are supporting organisations in how they are bringing their teams together in today’s hybrid world. We launched Meeting for Good to provide more sustainable meetings and events and a new programme for Crowne Plaza in Greater China that blends social areas and work spaces to meet demand for combined business and leisure travel.
For our hotel owners, we remain focused on providing the operational and commercial support they need to strengthen performance and capture demand. IHG One Rewards is playing a central role, having grown to more
voco Brussels City North, Belgium
than 130 million members in 2023. Supporting it in attracting consumer attention and driving revenue to our hotels is our masterbrand strategy, which is putting IHG Hotels & Resorts in more places, more often, to lift awareness and brand favourability measures. At the heart of this approach is our Guest How You Guest global marketing campaign, which extended its reach across markets, channels and events to increase IHG’s appeal with key demographics, supported by targeted regional promotions and brand marketing campaigns – including our largest ever for Hotel Indigo.
We continue to engage closely with our hotel teams and owners on how we can best drive performance – connecting with General Managers on regular calls and at regional conferences, and with owners through webinars, meetings and our first-ever IHG Americas Premium Investors & Leadership Conference in 2023.
During the year, we introduced more efficient design prototypes for renovations and new-builds across several of our brands and expanded our procurement solutions to create more resilient supply chains that benefit from IHG’s scale. This includes the rollout of our new Hotel Purchasing Services programme for our Essentials and Suites brands in the Americas and select markets throughout EMEAA, providing end-to-end support to speed up renovations and openings. Our Group Purchasing Organization agreements now cover more than 100,000 items and our Procure-to-Pay platform in Europe, Greater China and the Middle East also allows hotels to purchase products collectively to reduce costs.
Developing sustainable solutions is crucial to the long-term success of IHG, our owners’ businesses and the industry, and this year we have made progress while at the same time strengthening owner returns. For example, we have expanded our Community Solar
We continue to engage closely with our hotel teams and owners on how we can best drive performance.”
initiative to provide access to renewable energy in several US states, helping reduce hotel energy bills; our turnkey financing solution is simplifying the installation of energy conservation measures; and our collaboration with certification programmes is enabling owners to showcase their sustainability credentials to guests and corporate clients to increase bookings and drive revenue.
See pages 33 to 35 to find out more.
Important work continues on supporting the industry on a broader scale, as we collaborate with governments, peers and trade bodies on a range of issues. We also launched IHG LIFT in 2023 to create more hotel development support in the US and Canada for historically under-represented groups within the hospitality industry and to further diversify our owner community.
Award-winning
7
Freddie Awards won by our
IHG One Rewards loyalty programme
Our strategy continued
Brands guests and owners love continued
We are focused on making the IHG Hotels & Resorts masterbrand a household name that continues to drive awareness of our brands. We will do this by showcasing the strength of our offer across segments through dedicated marketing support, global brand campaigns and strategic partnerships.
The quality and consistency of the guest experience also remains a key focus – from loyalty recognition to property condition – and we will deliver training, data insights and property improvement plans to support hotels. Enhanced loyalty benefits, service and digital products will help create even richer and more rewarding guest experiences in 2024.
For our owners, we will continue to reduce the cost to build, open and operate our hotels, from delivering cost-effective brand formats to creating efficiencies in furniture, fixtures and equipment. Supporting this, we will bring our new Hotel Purchasing Services programme to scale to ensure a more seamless opening process for more of our owners, while tailored supply chain solutions will support further rapid growth of our newer brands and Luxury & Lifestyle portfolio.
Hotel Indigo Galapagos, Ecuador
Why hotel owners choose to work with IHG
Hotel owners choose to work with IHG because of the trust they
have in our brands and our track record in delivering strong returns.
Why hotel owners choose to work with IHG Hotel owners choose to work with IHG because of the trust they have in our brands and our track record in delivering strong returns. Strength of brands A portfolio of brands across industry segments, designed to drive owner returns Global sales organisation Strong loyalty We have developed programme and a global sales enterprise enterprise contribution to drive higher-quality, Almost 80% of room lower-cost revenue to revenue delivered to our hotels hotels by IHG’s managed channels and sources Sustainability Commercial engine tools and expertise We have invested in We have developed our cloud-based IHG tools, training and ConcertoTM platform, programmes to including our Guest support hotels and Reservation System provide better data and our digital and insights to enable channels, to enhance them to reduce their the guest experience energy, waste and and strengthen water consumption owner returns Procurement Investment in hotel lifecycle We use our scale to reduce management and operations costs for owners, with We have invested in technology, procurement programmes systems and processes to for hotel goods, services support performance, increase and construction efficiencies and drive returns for our owners
Strategic Report Our strategy continued PRIORITY: nvestments in our loyalty programme, technology platforms, data and analytics, Leading Iand partnerships are raising the bar on the guest experience and driving commercial performance for IHG. Every solution and tool we are developing is firmly focused commercial on gaining competitive advantage for our brands, business and owners. What we achieved in 2023 engine Illustrating the success of our commercial engine across our technology platforms, sales and distribution channels, in 2023 2023 AT A GLANCE we saw enterprise contribution from IHG-managed channels and sources reach Loyalty penetration increased, almost 80%, up from 72% three years ago. with members now responsible for Our ability to provide hotel owners with 50% higher-value customers at a lower cost of customer acquisition in this way is key Increase in loyalty enrolments >55% to the attractiveness and proven success year-on-year – a record rise of our entire enterprise. of room nights globally Our transformed loyalty programme is playing an important role in our progress. Members spend approximately 20% more in hotels than non-members and are around ~80% 38% 10 times more likely to book direct. In 2023, Enterprise contribution Increase in revenue we achieved a record year for enrolments, from IHG-managed driven by app which were up 50% on 2022 and 24% ahead channels and sources year-on-year of 2019, taking us to more than 130 million – up from 72% three years ago members. Loyalty penetration also increased, with members responsible for over 55% of room nights globally during the year. We know that recognised members are also >60% >6,000 20% more likely to return to a property, so we are working closely with our hotel teams Increase in new US co-brand Hotels now featuring attribute to embed a culture of loyalty. This includes credit card accounts upsell, enabling guests to setting up a taskforce providing materials, year-on-year personalise their stays job aids and training for colleagues, and 26 IHG | Annual Report and Form 20-F 2023
introducing incentives like Food & Beverage Rewards for guests to drive repeat bookings in a way that minimises impact on the bottom line for owners.
Following the update of US co-brand credit cards alongside the relaunch of our loyalty programme, the number of new accounts have continued to increase very strongly and, in 2023, were up more than 60% year-on-year and over 80% on 2019 levels. There has also been continued growth in average card spend, both on a year-on-year basis and vs 2019.
Further deepening our relationships with guests and driving more business to our hotels, we have expanded our strategic partnerships to enable IHG One Rewards members to redeem points in exchange for more unique experiences at sporting events and music festivals, as well as exclusive member privileges with other leading brands.
As the gateway to IHG One Rewards, our mobile app is also playing an integral role in driving loyalty contribution, direct bookings and incremental spend during stays. Since relaunching it in 2022, we have made thousands of enhancements to further improve the guest experience and drive revenue to our hotels. It has achieved strong user ratings in the App and Google Play stores and the IHG mobile app and other mobile channels now account for 58% of all digital bookings. The number of downloads were up 60% year-on-year, too, with revenue driven by the app increasing 38%.
In Greater China, we continue to enhance our capabilities on WeChat – the region’s popular messaging, social media and mobile payment app. Updates to the IHG WeChat channel contributed to an 8% increase in booking conversion rates year-on-year and it generated nearly twice as much revenue.
Our mobile app is part of a wider transformation of the booking journey. By the end of 2023, refreshed brand websites covering 92% of open hotels had been redesigned and relaunched. Linked to this, the upsell of unique room attributes on IHG’s Guest Reservation System (GRS) is now available in over 6,000 hotels, enabling guests to seamlessly select add-ons when making reservations, and owners to generate maximum value from their hotel’s unique attributes. Guests who select an upsell on our digital booking channels drive an average nightly room revenue increase of $18 across our Essentials and Suites brands, and $40 for Luxury & Lifestyle. Our GRS capabilities also enable more effective
cross-sell of guest stay extras, such as F&B credits, lounge access, additional in-room welcome amenities and parking, as part of the redesigned booking flow.
We will continue to accelerate the impact of IHG One Rewards by scaling benefits and improving the on-property experience. This will involve data-driven marketing across our booking channels, while in our hotels we will provide further training and use innovative approaches to inspire colleagues to deliver even more consistent guest experiences. This includes IHG Climb – a new interactive gaming-based platform that engages hotel teams to help drive and enhance performance towards their hotel loyalty metrics. So far, it has been rolled out across the US and parts of Canada, where we are already seeing high levels of engagement and improved performance.
Continuing our focus on providing best-in-class platforms, IHG’s revenue management system employs a new cloud-based platform
that incorporates leading data science and forecasting tools to deliver advanced insights and recommendations to owners as part of our enhanced revenue management services. Already in pilot, the rollout is targeting approximately 4,000 hotels in 2024.
Work will also begin on our next-generation property management system to create greater value for owners – where a single cloud-based view across properties will enable us to deploy fast, efficient enhancements at scale.
We will continue to integrate the Iberostar Beachfront Resorts brand into our systems and booking channels. This strengthens our all-inclusive and resort offer and lays the foundation for growing our Exclusive Partners collection by underlining the value of our commercial engine.
Building on the success of our relaunched co-brand credit cards, we will focus on the continued growth of our existing programmes and explore opportunities globally to better serve our growing loyalty base in key markets.
Our strategy | Leading commercial engine
Strategic Report Our strategy continued PRIORITY: Care for our people, e recognise that profit and growth are intrinsically linked Wto doing the right thing and caring for our people, the communities communities in which we operate, and the world around us has been at the heart of our business for many years. Guiding our actions is Journey to Tomorrow, and planet our responsible business plan consisting of a series of commitments to 2030. This is underpinned by our strategic priority to care for our people, communities and planet, and aligned with the UN Sustainable Development 2023 AT A GLANCE Goals and IHG’s purpose of providing True Hospitality for Good. 87% >89,000 Progress against our commitments, which include creating a more inclusive workplace, Overall employee Hours collectively supporting our communities and reducing engagement +1%pt on 2022, dedicated by colleagues our carbon, waste and water usage, are with IHG named a Global Best in 2023 during IHG’s monitored and measured by the Board’s Employer by Kincentric Giving for Good month Responsible Business Committee. Not only are our actions crucial to the world around us, they are increasingly important to our guests, owners and investors, too, 3.8% 15 and are therefore critical for our reputation Reduction in carbon The number of relief and growth. Reflecting a changing world, emissions per occupied efforts we responded to each commitment focuses on areas where room since 2019 around the globe alongside we can make the biggest impact, so that our charity partners IHG continues to grow responsibly. See key matters discussed by the Board on page 101 to 103 and the Responsible Business Committee Report on pages 112 and 113. See our Responsible Business Report at Giving for Good month made a positive difference ihgplc.com/responsible-business/reporting to the lives of over 248,000 people globally 28 IHG | Annual Report and Form 20-F 2023
Our people are fundamental to IHG achieving its purpose and strategic goals. IHG’s business model means that we do not employ all colleagues. We directly employ individuals in our corporate offices, certain reservation centres, and managed, owned, leased and managed lease hotels. However, not all individuals in managed, owned, leased and managed lease hotels are directly employed and, in general, we do not employ any individuals in franchised hotels (nor do we control their day-to-day operations, policies or procedures).
What we achieved in 2023
People engagement
We have numerous forums available for employees to share their thoughts, including Employee Resource Groups (ERGs), a designated Non-Executive Director for workforce engagement, and Colleague HeartBeat, our employee engagement survey, which allows people to express their views on key aspects of working at IHG.
In our 2023 survey, our overall employee engagement stood at 87%, a 1%pt improvement on last year, which once again saw IHG accredited as a Kincentric Global Best Employer. The survey also highlighted areas that we can strengthen further, including enabling infrastructure, rapid and high-quality decision making, and rewarding and recognising strong performers. Ensuring consistent experiences across all aspects of work was identified as a key driver for future performance. Actions taken during 2023 on talent and staffing saw a significant improvement in perceptions in these areas.
Developing and retaining talent
To achieve our growth ambitions, we invest in attracting and retaining a diverse and talented workforce through our employer brand, which includes our promise to support employees throughout their career by giving them Room to Belong, Room to Grow and Room to Make a Difference.
Each promise is supported by programmes designed to enable employees to thrive both within the workplace and outside.
For example, this year we piloted a new corporate onboarding programme in the US, UK, India and the Philippines aimed at embedding IHG’s culture with new employees. We celebrated each of our employer brand promises with a week of learning events. This enabled the business to spend time focusing on creating an inclusive culture where everyone can thrive, supporting employees in developing their careers and helping make a difference to the world around them.
We provide learning programmes, masterclasses, resources and toolkits to ensure colleagues have the capability to support IHG’s performance and development processes. Particular focus is placed on having meaningful career conversations and helping managers and employees support career development.
Managers have continued to hold quarterly check-ins with their teams as part of our performance management process, providing feedback and guidance on goals, behaviours and development to ensure everyone is focused on the right priorities.
Our strategy | Care for our people, communities and planet
Care for our people, communities and planet continued
IHG’s reward strategy aims to attract, retain, motivate and engage top talent. It is supported by a robust governance approach that ensures our reward and recognition practices are fair and consistent across our employee and colleague population, regardless of gender and other aspects of diversity, and there is alignment between the wider direct workforce and executive remuneration. Further details between the alignment of the wider workforce and executive remuneration can be found in the Directors’ Remuneration Report on pages 116 to 140.
For our hotels, Journey to GM (our General Manager talent acceleration programme) continues to build a pipeline of talent to meet both our growth ambitions as a business and the aspirations of employees seeking rewarding careers at IHG. Following our first cohort in 2021, we have seen 65% of participants either move into their first GM role or receive a substantial promotion in our EMEAA and Americas regions. For our Luxury & Lifestyle GMs, we delivered brand immersion sessions to bring each of our brands to life. We also continued to develop our hotel talent management practices during 2023 so we can see critical gaps we need to fill.
Investing in HR technology and Global Learning
In 2023, we continued to evolve our HR system by adding a new helpdesk and digital assistant, in-sourcing our HR Shared Service team and enhancing our support section within Our People Tools HR platform. We have transitioned from legacy payroll systems within the UK and US.
Our Global Learning strategy is designed to ensure that we all have the tools and resources we need to perform at our best, meet the needs of our stakeholders and develop personally as part of our Room to Grow commitment.
This year, our learning platform provided 345,000 users across our corporate offices, franchised and managed hotels with access to flexible training so they could personalise their learning experience to address specific needs and strengthen opportunities for career development.
A key element of our offer is IHG University, which was launched in 2023. There are four schools to support corporate employees, frontline colleagues in our hotels, GMs and hotel department leaders, and owners. The university champions individual learning, career development, talent acceleration and best practices.
IHG University received the Brandon Hall Group Bronze award for excellence within the category of Best Advance in Custom Content, as well as awards for Digital Learning Best Practice and Best Digital Learning Team by Online-Edu.
Attracting talent
To help attract the talent we need to fulfil our growth ambitions, we have invested in a comprehensive suite of channels and platforms. Our IHG careers website had over 2.46 million visitors in 2023, while there has also been a 51% rise in visitors to our new digital channels, which include Instagram, YouTube and TikTok. This has generated 9.32 million views of our employer brand content globally over the past year, which we are boosting with paid sponsorship of key job opportunities to drive thousands of applications for frontline roles in our hotels.
To help tackle the industry shortage of talented and experienced Luxury & Lifestyle GMs, our dedicated Luxury & Lifestyle team has implemented a specialised recruitment strategy to address this gap and build further trust with our owners.
We also continue to invest in tools and guides to ensure a transparent, equitable, inclusive and efficient hiring process to elevate the recruitment experience for the corporate and hotel candidates who apply to IHG each year.
Recognising the importance of attracting and developing talent whatever their backgrounds, circumstances, or abilities, we expanded the number of organisations we’re working with in the US to attract students to our 10-week paid internships. This will enable us to further diversify our early careers pipeline. Our work continues with Historically Black Colleges and Universities in the US, and the Leonard Cheshire and 10,000 Black Interns Foundation charities in the UK. While in Greater China, we have established partnerships with five special education schools to nurture talent among people with disabilities.
Championing a diverse culture where everyone can thrive
A cornerstone of our culture is our passion for inclusion, and our Global DE&I Board and regional DE&I councils help shape actions across our markets that are aligned to our Journey to Tomorrow commitments.
Our commitment is emphasised through, and is backed up by our 2023 DE&I Progress Report, which you can find on our website:ihgplc.com/en/responsible-business/people
Driving gender balance across our leadership
Globally, 35% of our leaders working at VP level and above are female (vs an ambition of 39% by 2025), and we are one of the few large global organisations to have a gender-balanced employee population, of which 52% is female.
A key focus is attracting more women into functions that have been historically less gender-balanced, such as Commercial, Operations, Technology and Development. We’re also identifying and removing barriers to increase the number of female GMs across our estate, including establishing an alumni network for graduates of our Rise mentoring programme, which empowers our female colleagues in our hotels. Overall, more than 200 women have graduated from the programme so far, and this year we welcomed an additional 162 participants. We were delighted to see Forbes recognise IHG as one of the world’s top companies for women, and proud to be officially certified in the US as a Great Place to Work for parents, as well as featuring in the 100 Best Places to Work for Women.
Senior managers
(including subsidiary directors)
All employees
(whose costs were borne by the Group or the System Fund)
Doubling under-represented groups among our leaders
We remain committed to having leaders who represent the diverse global nature of our business. Thanks to the self-disclosure of employees, we know that 22% of our global leaders working at VP level and above are racially or ethnically diverse and represent 16 nationalities.
We have identified the UK and US – where we have our largest populations of corporate colleagues – as markets in which we want to increase ethnic representation. We have set targets for the percentage of leaders working at VP level and above that are ethnically diverse in each market – 26% by 2025 in the US and 20% by 2027 in the UK, with an overall global target of 26% by 2025.
As part of these plans, we continue to focus on strengthening our approach to talent planning, including embedding our diverse talent programmes (Ascend in the US and The Network of Networks’ (TNON) Ethnically Diverse Programme, and Women in Hospitality, Travel & Leisure’s (WiHTL) Ethnic Future Leaders Programme in the UK) to develop the next generation of talent through our early career programmes and inclusive hiring practices. Furthermore, we are building relationships and collaborating across our markets to support people with disabilities. As at 31 December 2023 Ethnically Diverse Total Executive Committee 2 9 Global VPs and above 53 238 UK VPs and above 5 58 US VPs and above 24 133 Creating a culture of inclusion for our colleagues, owners and suppliers All EC members have a DE&I-related goal and, having rolled out conscious inclusion training for GMs and corporate employees in key markets in 2021, this year we made the training available to more than 16,000 colleagues in our franchised hotels. Insights from our Inclusion Index are also among the ways we are tracking progress. In 2023, the Index showed that nine out of 10 employees considered IHG to have an inclusive culture. We were proud to have been ranked second out of 850 companies on the Financial Times Europe’s Diversity Leaders 2024 list. InterContinental Fujairah Resort, UAE This year, we have seen significant growth of our ERGs and now have 4,000 members across 29 chapters. Playing a key role in underlining the value of inclusion, they brought employees together for moments such as the International Day of Persons with Disabilities, International Women’s Day and Pride Month. We are also continuing to drive inclusion within our hotel owner communities in the US and Canada by introducing IHG LIFT – an owner growth programme focused on creating more hotel development support for historically under-represented groups within the industry. InterContinental Marseille – Hotel Dieu, France To help drive inclusion in our supply chain, our Engaging Partnerships through Inclusion and Collaboration (EPIC) supplier diversity programme expanded to the UK during the year, representing the first international market outside North America. We also recognised the diversity programmes run by our key suppliers, and through our EPIC Allies initiative they are now working with us to identify diverse suppliers in their respective supply chains. We launched our Supplier Diversity Tier 2 programme, too, inviting key suppliers who share our values to report their diverse spend, so that IHG can influence further how our supply chain creates value for communities across the globe. Working with advocacy groups is critical to our success in diversifying our supply chain. Collaborating in this way offers a bridge between IHG and diverse businesses to support our supply chain inclusion, market capability influence and economic impact goals. As a result of collective action in 2023, IHG’s total spend among diverse suppliers was $111 million across North America, the UK and Tier 2 reporting. Supporting colleagues to prioritise their wellbeing and that of others In 2023, we achieved a 2%pt increase in our Wellbeing Index score (to 89%) for our hotel colleagues. Supporting our overall approach to colleague wellbeing, we also launched a UK network of mental health first-aiders, helping to ensure the right support is in place for everyone to feel at their best, and we made enhancements to our UK healthcare plan. Our strategy | Care for our people, communities and planet IHG | Annual Report and Form 20-F 2023 31
With more than 6,300 hotels spanning over 100 countries, we are proud to be at the heart of thousands of communities around the world, as we strive to make a difference every day by delivering our purpose of True Hospitality for Good. Through providing skills training, supporting relief efforts following natural disasters, and fighting food poverty, we aim to improve the lives of 30 million people. In addition to direct funding and working with expert organisations, our colleagues contribute their time, skills and passion to address social needs within their communities.
To ensure that we measure our impact and maintain focus on areas where we can make the greatest difference, we adhere to the global standard for managing corporate community impact as members of Business for Societal Impact (B4SI).
Skills training and innovation
Our IHG Academy programme is aimed at increasing social mobility and building hospitality skills for the future. In 2023, our IHG Academy offerings saw more than 30,000 participants gain valuable employment and life skills, as the programme has grown to provide work experience, internships, apprenticeships and free online learning through our IHG Skills Academy to users all around the world. This year, we expanded our offer to include cognitive assessments, which enabled users to complete personality profiles and skills mapping assessments to help them identify their ideal roles.
To learn more about the impact of our IHG Academy programmes, see our 2023 Responsible Business Report.
Colleagues from our Shanghai office volunteered their time at a coffee shop, which employs individuals with disabilities
Number of people participatingin IHG Academy
Local action and Giving for Good month
We recognise that being in the heart of our communities, our hotels are best placed to assess local needs and provide tailored support where it is needed most, so we encourage the development of local collaborations in line with our policy and strategy for community impact.
Each year we come together as a company during September for IHG’s Giving for Good month, which sees colleagues volunteer and make a positive difference in their communities. In 2023, we worked with over 1,400 charities across events spanning nearly 80 countries. Colleagues collectively contributed more than 89,000 volunteering hours to communities, causes and charities, adding to a total of more than 121,000 volunteering hours during the year. Efforts throughout the month made a positive difference to the lives of over 248,000 people globally. Activities included giving clothes to housing shelters in Canada, raising money to provide clean water in
Egypt and providing meals to low-income hospital patients in Mexico. More than 270 projects focused on protecting the planet too, from beach and city clean-ups to replanting green spaces. This year, we also launched a tracker to help us better understand and celebrate the way hotels support their communities year-round.
Supporting our communities when disasters strike
We are proud of being there for our communities in times of need and continued working with a range of humanitarian aid organisations around the world to assist in their critical relief and recovery efforts.
In 2023, we supported 15 global relief efforts, which included responding to several natural disasters, from the earthquake in Turkey and Syria to the hurricanes in Mexico, working closely with charity relief experts CARE International and the American Red Cross.
We also activated the IHG Colleague Disaster Relief Assistance Fund on several occasions to support colleagues with immediate relief, including those affected by typhoon Mawar on the island of Guam.
Collaborating to aid those facing food poverty
Our commitment to supporting local charities across various markets is a vital means of addressing food security for those in need. This year, we expanded our work with local organisations, including Windsor Foodshare near our Global Headquarters, as well as KiwiHarvest and UK Harvest. This expansion helps support society’s most vulnerable and reduce food waste.
Our existing collaborations continued to thrive. We’re now in our fifth year of working with OzHarvest, a food rescue organisation in Australia, and we continue to build our relationship with JapanHarvest and VietHarvest. We also supported the Global FoodBanking Network, which operates in nearly 50 countries. This included expanding our work with Green Food Bank, the official branch of the network in China.
Our guests are also given the opportunity to show their support, and in 2023, nearly 35 million points redeemed by our IHG One Rewards members were donated to benefit the efforts of the global charities we work alongside.
The actions we take to deliver our Journey to Tomorrow plan help protect our planet and support the ongoing creation of more sustainable guest stays. We provide tools and information as well as work across the industry to help set standards to enable our hotels to reduce carbon emissions, manage waste and conserve natural resources. To do this, we continue to collaborate with hotel owners, suppliers, industry peers and governments.
See our TCFD, Responsible Business Committee Report and GHG emissions disclosures on pages
52 to 59, 112 and 113 and 238 to 240.
See our Responsible Business Report at ihgplc.com/responsible-business/reporting
Energy and carbon
Working closely with our hotel owners, we aim to help them reduce costs while decarbonising and future-proofing their assets.
We have set a target to reach a 46% absolute reduction in GHG emissions from our franchised, managed, owned, leased and managed lease hotels, from a 2019 baseline. This target has received validation from the Science Based Targets initiative (SBTi), aligning with climate science and the UN Paris Agreement.
While there was an increase in year-on-year emissions in 2023 due to the recovery in occupancy and growth in the size of the estate, we continued to drive energy efficiency with a 3.8% reduction in carbon emissions per occupied room from 2019, and a 1.9% absolute reduction against the baseline.
Given our business model and the dependencies for achieving our ambitious target, we have worked closely with our colleagues, owners and partners to devise a decarbonisation strategy focused on three key areas: decarbonising existing hotels, sourcing renewable energy, and developing new-build hotels that operate at very low/ zero carbon emissions.
In 2023, we moved to a more regionalised approach to ensure the measures we introduce at hotels take into account varying regional factors and still provide a good return on investment for our hotel owners.
We continued to update our brand standards and are integrating various Energy Conservation Measures (ECMs) into the expectations of hotels that work with us. All ECMs integrated into hotel brand standards are carefully considered, taking into account costs and impact. In 2022, we established our first set of energy efficiency global brand standards, and this year introduced further ECMs into our new-build hotel brand standards globally, as well as for our existing Essentials & Suites estate in the Americas. Standards include measures for lighting controls, occupancy-sensing thermostats and heat pumps. We will continue working on implementing additional brand standards tailored to each region and segment.
These ECMs will further drive energy reduction across our hotels and form part of our new ESG measure for the 2023/25 cycle of the Long Term Incentive Plan for Executive Directors and other senior leaders.
The solar farm in Illinois, US, where our hotels can access our Community Solar programme
Being part of IHG ensures hotel owners receive the support, knowledge and resources necessary to help reduce their energy consumption and carbon emissions. One key example of this is our Hotel Energy Reduction Opportunities (HERO) tool, which guides hotels on effective actions tailored to specific buildings. It provides indicative capital costs, energy savings and payback periods based on the hotel’s facilities, climate and energy use. In addition, we are actively working to ensure that owners can access government incentives for sustainability measures requiring greater investment.
We are developing plans for hotels that operate with very low/zero carbon emissions. This includes a low-carbon hotel programme, focused primarily on the operational aspects of new-build hotels, to support delivery of our carbon and energy goals. We expect to launch this programme in 2024.
With the majority of our hotels operating through franchise agreements, we cannot directly procure renewable energy for most of the properties in our estate. However, we seek to help all our owners secure access to renewable energy, and have been exploring which options would be suitable for scaling across our estate.
One example of how we have been able to support our hotels is through our Community Solar programme, which is available in select markets across the US and requires no capital expenditure. It is currently active for IHG hotels across four states, with more to follow soon, where legislation supports the initiative and there is available capacity. Our commitment also extends to procuring renewable electricity for six of our global offices, including our Global Headquarters in Windsor in the UK and our Americas Headquarters in Atlanta in the US, as well as more than a quarter of our managed estate in Europe.
Waste
Our overarching objective is to embrace circularity by encouraging reuse or recycling of resources. This involves initiatives such as integrating recycled materials into new product manufacturing or ensuring that items at the end of hotel use find meaningful applications elsewhere. We also have processes and tools in place to assess the environmental sustainability of our suppliers and advise our hotels accordingly (refer to page 41 for updates on our responsible procurement progress).
In 2019, we became the first global hotel group to commit to replacing bathroom miniatures with full-size amenities, which has been implemented into brand standards across all our hotels globally. We have also committed to eliminating single-use items, transitioning to reusable or recyclable alternatives throughout the guest stay by 2030.
To further assist our hotels, we have developed a bespoke Single Use Items Toolkit for our hotel operators. Initially launched in EMEAA, in 2023 we made it available globally. It provides hotels with additional support and best-practice approach to reducing, reusing, replacing and recycling single-use items. Our updated sustainability credentials for our guest supplies, encompassing items like toothbrushes and razors, have been successfully implemented by many of our hotels this year in EMEAA.
Food waste is a key issue for the hospitality industry and we use a ‘prevent, donate, divert’ plan to minimise landfill contributions. At the industry level, we collaborate with peers to ensure a unified approach to collecting, measuring and reporting waste. All our hotels have access to food waste training as part of the GM training programme, which encourages hotels to track food waste and take action. Since its launch in 2022, the training has been accessed by more than 1,600 hotels and over 37,000 courses have been completed by managed and franchised colleagues.
We also use a range of technology to address the challenge – whether that’s an app that connects hotels with customers or communities when they have unsold surplus food or analytics to pinpoint areas of waste and provide chefs with real-time information.
Water Conserve water and help secure water access in those areas at greatest risk Our 2030 commitments • Implement tools to reduce the water footprint of our hotels. • Mitigate water risk through stakeholder collaboration to deliver water stewardship at basin level. • Collaborate to ensure adequate water, sanitation and hygiene (WASH) conditions for our operating communities. With insufficient global water resources to meet everyone’s needs compounded by the escalating frequency of extreme weather events and droughts, it is important that we identify hotels in areas of high or very high water stress. This insight is crucial for tailoring our business strategy effectively, providing targeted support to these hotels, and implementing water-saving measures. We have been part of the United Nations (UN) CEO Water Mandate since 2019, which represents a pledge to six core commitments that mobilise business leaders on water, sanitation and the UN Sustainable Development Goals (SDGs). We are also members of the Water Resilience Coalition, which aims to raise global water stress to the top of the corporate agenda and preserve the world’s freshwater resources through collective action and ambitious, quantifiable commitments. Our membership has helped to inform our work to identify and manage water supply, so that we can build on the six water stewardship pilot projects we have carried out in recent years. Acknowledging the challenges in sustaining a reduction in water use in the coming years, we mandate reporting on water usage in our hotels through the IHG Green Engage™ system and have integrated water reduction measures into our brand standards globally. These standards require hotels to implement high-efficiency, low-flow aerated shower heads and taps by the end of 2025. On average, these initiatives reduce water consumption by 11 litres per minute and three litres per minute respectively. Collaborating with water specialists is crucial when aiming to maximise impact and bring about positive change in water-related issues. When a devastating earthquake struck Turkey and Syria in 2023, IHG donated to CARE International to help it deliver essential WASH items to those seeking refuge. The hygiene kits provided included items that are crucial to improving sanitation for vulnerable communities and preventing disease, such as soap and towels. What’s to come People We will continue to support our employees throughout their career journey, providing tools and resources to ensure everyone has Room to Grow, Belong and Make a Difference. We will focus on building line manager capability and enabling a high-performance culture. We will continue to invest in talent management to enhance our approach to recruitment, alongside building on our successful 2022 campaign to strengthen our General Manager pipeline in support of our growth aspirations, particularly in the Luxury & Lifestyle segment. We will also enhance our learning curriculum for this population, centred around the key luxury capabilities we know we need to build for the future. We will continue embedding our inclusive culture and working towards clear commitments to make IHG a place where everyone can thrive at all levels within the business. Communities We are committed to ongoing collaboration with expert charities to assist those in greatest need globally. We will actively seek new opportunities within our communities to further strengthen our collective impact and engage our guests, employees and colleagues. To ensure our hotels make the biggest possible positive impact within their communities, we will support them in establishing local collaborations to help those who need it most. To encourage further engagement, we will use our new Community Tracker to measure the impact of actions and celebrate success by continuing a monthly recognition programme. We will continue to expand our IHG Academy, including providing more work experience opportunities in our hotels and more learning resources on the IHG Skills Academy virtual learning platform. Planet Work has begun upgrading our IHG Green Engage system so that it is more user-friendly and makes greater use of analytics to provide hotels with even richer insights across energy, water and waste. Pilots were completed during the year, resulting in positive feedback from hotel teams, and our improved environmental management platform will be launched in 2024. To support the delivery of our carbon and energy goals, we will also be launching a low-carbon hotel programme, which is primarily focused on new-build hotels that operate with a very low/zero carbon footprint. Collaboration remains crucial to meeting our goals, and we will continue to use our scale and standing when engaging with peers, trade bodies and governments to help shape policy relating to our owners and the sector more broadly, as well as secure government incentives for introducing sustainability measures. Our strategy | Care for our people, communities and planet IHG | Annual Report and Form 20-F 2023 35
Strategic Report Our stakeholders takeholder engagement at all levels of the business is of the utmost importance to IHG. Various methods of engagement Sare used based on experience and developing best practice, including face-to-face meetings, feedback and performance reviews, employee forums and training. We adjust our engagement methods as required to ensure they remain effective for all our stakeholders and IHG. IHG measures the effectiveness of our engagement methods through a range of metrics, including our KPIs (such as signings and pipeline), performance, ability to attract and retain talent, employee engagement survey results, adherence to the policies covered by our Code of Conduct and AGM results. The views and interests of other stakeholders, such as regulators and industry bodies, are also taken into consideration. They help provide a framework against which we measure ourselves, protect our reputation and develop our commercial and social awareness. Stakeholders Guests Our ability to offer a wide selection of brands, with quality stay experiences, plenty of choices, great value and loyalty rewards, are key to attracting and building trust with IHG’s guests, while continuing to drive commercial performance and revenue. What impacted them in 2023 • Increased desire to travel and for access to a broader range of locations and experiences. • Rising cost of living and effect of inflation. • Significant interest in the ESG profiles of companies. • Continued desire to book and stay seamlessly. Engagement • Teamed up with major events to allow IHG One Rewards members to redeem points in exchange for unique experiences. • Continued improvement to next-generation mobile app. • Guest satisfaction surveys. • Expanded choice of locations for our Luxury & Lifestyle brands. • New public space and guest room designs. Outcomes • Rollout of IHG Wi-Fi Auto Connect. • Continuous improvement to IHG One Rewards, providing more ways to earn and redeem points. • Expanded our portfolio to 19 brands with the addition of Garner. • Enhanced digital customer service support, including automation to speed up response time and direction to the right team. • Continued enhancement of meetings offered for corporate clients. • Launched Meeting for Good to provide more sustainable meetings and events. See our Guest Love KPI on page 62 and how the Board had regard for guests as part of its consideration of strategic and operational matters on pages 102 to 103. Shareholders and investors Our ability to maintain strong relationships with shareholders and institutional investors is fundamental to our ability to access capital markets and ensure IHG’s long-term success. • The impact of geopolitical unrest on the hospitality sector in certain regions, which could affect IHG’s trading performance and financial results or influence its capital allocation policy. • Executive remuneration policies, including the potential use of discretion, alignment with workforce pay and talent retention. • Concerns about climate change and wider sustainability issues. • CEO succession and Board composition. • Regular roadshow investor meetings and participation at investor conferences by Executive Directors, senior leadership and the Investor Relations team. • Extensive consultations between the Chair of the Remuneration Committee and institutional investors and proxy vote advisers. • Meetings with the Chair, IHG’s Chief Sustainability Officer and the Investor Relations team to discuss governance, sustainability and workforce practices. • Continued investor confidence in IHG’s performance, long-term viability and leadership, as demonstrated through feedback received and across AGM results. • Enhanced understanding of shareholder and investor focus areas, including in relation to remuneration policy and ESG matters. • Continued investor confidence in the composition of IHG’s Board. See also a description of our dividend policy on page 13, our KPIs on pages 60 to 63, key matters discussed by the Board on pages 102 and 103 and engagement with shareholders relating to Executive Director remuneration on pages 116 to 117 and 125. Visit ihgplc.com/investors for further information. Suppliers Responsible supplier relationships are vital for IHG in driving efficiency and effectiveness throughout our supply chains. • Ongoing uncertainty and disruption in supply chains. • Increased focus on sustainability and integrity within supply chains. • Increased consumer desire for sustainable goods and services. • Engaged with high–performing suppliers in sustainability and the circular economy that provide key goods and services to our hotels and corporate functions. • Following the introduction of Ecovadis, a supply chain due diligence tool, in 2023 IHG became a founding member of the Hospitality Alliance for Responsible Procurement (HARP). Identified alternative solutions with suppliers where supply was impacted across our corporate and hotel estate. Remained agile by adjusting our approach to goods and services sourced from affected regions. Increased collaboration opportunities with sustainable suppliers and for sustainable goods in alignment with our Journey to Tomorrow ambitions. Further information about how the Board considered supply chain and procurement is on pages 102 and 103, and our business relationships, including our statement of business relationships with suppliers, customers and others, is on page 237. Visit ihgplc.com/responsible-business for further information about our approach to responsible procurement.
Stakeholders Hotel owners IHG’s success relies on hotel owners investing in our brands. To remain attractive, we focus on the breadth of our brand portfolio and the effectiveness of our IHG One Rewards loyalty programme and wider enterprise. What impacted them in 2023 • Increased operating costs, including energy, food and beverage. • Labour shortages, supply chain challenges and financial and operational constraints caused by global macro-economic factors. • Ability to capture and drive demand for their hotels. • Evolving brand standards. Engagement • Direct meetings with CEO and Regional CEOs. • IHG Owners Association collaboration. • Owners and investors conferences. • Portfolio and individual hotel reviews covering operational, strategic and industry trend updates. • Conferences, training, webinars, regular newsletters and bulletins. • Hotel lifecycle and finance team support. • Collaboration with governments and industry to support recovery. Outcomes • Continued focus on IHG One Rewards loyalty programme. • Expanded brand portfolio with Garner. • Streamlined operations, including removed and relaxed brand standards. • Tailored marketing and promotions, supported by new data-driven resources and services that help hotels quickly identify and act on revenue opportunities. • Procurement programmes to drive savings for owners. • Increased training, guidance and recruitment support for hotel teams. • Next-generation formats for Holiday Inn, Holiday Inn Express, Candlewood Suites and Staybridge Suites. See our net rooms supply, signings, gross revenue and enterprise contribution KPIs on pages 60 to 63 and how the Board had regard for hotel owners as part of its consideration of strategic and operational matters on pages 102 to 103. Visit owners.org for further information about the IHG Owners Association. People Delivery of our purpose to provide True Hospitality for Good and the strategic priorities that drive future success rely on our people and our ability to maintain and evolve an engaged, diverse and inclusive culture where careers can grow. • Attracting the talent we need to fulfil our growth ambitions. • Employees wishing to grow and develop their careers at IHG. • IHG’s approach to diversity and inclusion. • Evolution of our core HR and learning technology platforms. • Employee engagement survey. • Pilot launch of Corporate onboarding programme in the US, UK, India and the Philippines. • Continued Voice of the Employee feedback sessions with the Board. • Addition of new helpdesk, digital assistant and insourced HR Shared Services team. • Significantly grown ERG memberships, increasing Inclusion Index scores and driving gender and ethnic leadership representation. • Celebrated Room to Grow Week with a series of events and resources to outline how to grow your career at IHG. Dedicated L&L hiring team to address the shortage of GMs. Recognised as a leader in DE&I by the FT Europe’s Diversity Leaders list and rated by Fortune as one of the Best Large Workplaces for Women. Overall employee engagement score of 87%, as IHG continued to be named as a Kincentric Global Best Employer. 2%pt increase in Wellbeing Index score for hotel colleagues. Launched network of mental health first-aiders in UK Corporate offices. Launched IHG University to support career development. See our employee engagement KPI on page 63, how the Board had regard for people in Board and remuneration decisions on pages 117, 118, 123, 124 and 127, Voice of the Employee disclosure on page 113, and our statement on employee engagement on page 236. Communities The communities we are a part of support, and benefit from, our responsible business approach and the commitments we have made to achieve a better and more sustainable future for everyone through our Journey to Tomorrow programme. • Access to business skills development and local employment. • Cost-of-living challenges and food poverty, including from geopolitical unrest. • Modern slavery and human rights issues. • Climate change and other wider environmental challenges. • Natural disasters, from the earthquake in Turkey and Syria to the hurricanes in Mexico. • Collaboration with local education providers and community organisations, as part of our focus on offering skills building and training opportunities. • Giving for Good month: a programme of activities and employee volunteering days. • Industry collaboration on human rights and labour conditions in specific markets. • Continued close collaboration with international and local charities and NGOs, such as CARE International and American Red Cross. • Support for 15 relief efforts around the globe and for our colleagues and their families through the IHG Colleague Disaster Relief Assistance Fund. • Support of the Global FoodBanking Network, which operates in nearly 50 countries. • 30,000+ people trained and mentored through our IHG Academy offerings in 2023. • More than 89,000 hours of colleague volunteering dedicated to communities during Giving for Good month. See our IHG Academy KPI on page 62, and Responsible Business Committee Report on pages 112 and 113. Visit ihgplc.com/responsible-business for further information on our community commitments. Our stakeholders IHG | Annual Report and Form 20-F 2023 37
Strategic Report operate Our culture responsibly – how we Our culture shapes our conduct and sets the tone for how we operate responsibly, driving forward our purpose of providing True Hospitality for Good. OUR VALUES Led by the Board and Executive Committee our values underpin our behaviours and business ethics, and guide how we deliver our strategy, make decisions and live our purpose. Do the right thing Show we care Aim higher Celebrate difference Work better together he long-term success of IHG Tis shaped by a number of interdependent factors, including our purpose, the effectiveness of our strategy and the resilience of our business model. Underlying all of these is our strong workplace culture, which is aligned with our reputation as a trusted and ethical company that is well governed. Our culture is driven by our approach to business, including our structure and governance, risk appetite, controls and systems, workplace environment, behaviours, values and policies (including our Code of Conduct). Therefore, understanding these aspects of our business is critical to understanding how we deliver on our strategic priorities, risk management and KPIs. Our structure and governance The overall responsibility for ensuring that our culture and ways of working are aligned with our purpose and strategy sits with the IHG Board. Throughout the year, the Board and its Committees receive updates and presentations, and review metrics, reports and scorecards, on the delivery of our strategic priorities, all with the appropriate governance lens and in the context of our culture. The Board challenges and supports the Group’s senior leaders, particularly where there is a need to adopt or amend policies and initiatives to ensure the continued alignment of strategy and culture. The Board delegates day-to-day responsibility for setting and embedding Company culture to the CEO who, together with the Executive Committee (EC), sets the tone from the top in relation to attitudes and behaviours to create an open and honest workplace environment, empowering employees to give feedback and freely ask questions about matters that concern them. The EC is responsible for executing the Group’s strategy, and keeping the Board informed of the Group’s operations and workplace culture. IHG’s hotel development and operations are organised on a regional basis (Americas, EMEAA and Greater China) and are supported by global functions in the key areas of Marketing, Commercial & Technology, Finance, Human Resources, Corporate Affairs, and Business Reputation and Responsibility. Management of the regional and global teams is organised into leadership teams, who are responsible for executing IHG’s strategic priorities in a manner that aligns with the Group’s culture and values. Decisions on hotel developments and capital expenditure go through the appropriate deal approval and expenditure committees in line with the Group’s Global Delegation of Authority Policy (DOA).
The DOA sets out financial commitment and expenditure approval controls. For those commitments over specified thresholds or for certain types of proposals, approval is required from the Group’s Capital Committee, which reports into the Executive Committee.
g
Information on the Board’s monitoring and assessment of our culture is included on page 103.
Our risk appetite is cascaded through our values and behaviours, our Code of Conduct, DOA and other global policies, and how we set our goals and targets, and is further reinforced by frequent leadership communications to guide decisions and set priorities, including the EC’s recent refresh of our strategic ambitions and behaviours.
We are committed to a framework of monitoring and assurance processes in relation to our initiatives and policies, reviewing whether they have operated within acceptable risk tolerances where priorities have shifted or additional actions were required. Board and Committee agenda topics allow the Board to identify and discuss the nature and extent of principal (and emerging) risks, and how risk management arrangements have been adapted where required.
See our Governance pages 100, 108 and 109.
office spaces and the latest technology to bring colleagues together for global learning events, town halls and workshops while also continuing to support our teams in finding a balance between remote and office working.
See our people disclosures on pages 28 to 31, and key matters discussed by the Board on page 102.
An integral part of our global approach to responsible business is to drive respect for and advance human rights in accordance with internationally recognised standards.
Our Human Rights Policy sets out our commitment to respect the human rights of all individuals impacted by our business activities – our guests, our colleagues, workers in our supply chain and the communities in which we operate – and our expectation that those with whom we do business – including our suppliers, owners, and franchisees – uphold similar standards. We seek to advance human rights by working with others to strengthen our practices and address common industry challenges.
IHG is a member of the United Nations Global Compact (UNGC) and is committed to aligning IHG’s operations, culture, and strategies with the UNGC’s 10 universally accepted principles in relation to human rights, labour, environment and anti-corruption.
To continue to enhance our human rights programme, a global human rights risk assessment was conducted this year to update our understanding of salient issues and how they are being addressed. Teams across our business are working together to develop and implement action plans in response to findings from this assessment.
For further details on our human rights progress, please see pages 20 and 21 of our Responsible Business Report and our Modern Slavery Statement.
The Code seeks to enable colleagues to make the right decisions, in compliance with the law and IHG’s expectations about conduct.
The Board, EC and all colleagues working in IHG corporate offices, reservation centres, managed, owned, leased and managed lease hotels must comply with the Code. We expect those we do business with, including our franchisees, to uphold similar principles and standards.
IHG’s Code of Conduct is available in 14 languages on the Company’s intranet and at ihgplc.com/en/investors/corporate-governance/code-of-conduct
Our culture – how we
operate responsibly continued
Initiatives to respond to legal, regulatory, ethical and compliance risks are more broadly discussed on page 47.
IHG is a member of Transparency International UK’s Business Integrity Forum and participates in its Corporate Anti-Corruption Benchmark. The results from this benchmark help to measure the effectiveness of our anti-bribery and corruption programme and identify areas for continuous improvement.
Handling information responsibly
We are committed to ensuring that guests, loyalty programme members, colleagues, shareholders, owners and other stakeholders trust the way we manage data. As part of our privacy and information security programmes, we have standards, policies and procedures in place to manage how personal data can be used and should be protected. Our e-learning training for employees on handling information responsibly is a mandatory annual requirement and covers topics such as password and email security, using personal data in accordance with our policies and privacy commitments, how to work with vendors and transferring data securely.
In addition to the cybersecurity awareness training mentioned on the previous page, this year we held tabletop exercises to practise our ability to detect and respond to potential security events, such as ransomware attacks. We continue to develop our privacy and security programmes to address evolving requirements and take account of developing best practice. The Board regards cybersecurity as a critical business discipline and it regularly receives updates on the Group’s cybersecurity risk management and control arrangements.
See page 46 for further detail on uncertainties relating to data and information usage, storage, security and transfer and cybersecurity on page 248.
Section 172 statement
Details of how the Directors have had regard to the matters set forth in Section 172(1)(a) to (f) of the Companies Act 2006 is provided in the Section 172 statement on pages 102 to 103.
Further details can be found throughout the Strategic and Governance Reports, including in our key stakeholder engagement disclosures on pages 36 and 37.
Non-financial and sustainability information statement
Non-financial and sustainability information, produced to comply with sections 414CA and 414CB of the Companies Act 2006, including a description of policies, due diligence processes, outcomes and risks and opportunities can be found as set out below. Internal verification and disclosure controls apply to all information covered in these areas.
• Impact of the Company’s activities on the environment on pages 33 to 35, 52 to 59, and 238 to 240.
• Social matters on pages 32 and 33.
• Anti-corruption and anti-bribery matters on page 40.
• Employee matters on pages 29 to 31, 103, 117, 118, 123, 124 and 127.
• Respect for human rights on page 39.
• A description of the Group’s business model on pages 10 to 13.
• The Group’s principal risks on pages 42 to 49.
• The Group’s KPIs on pages 60 to 63.
g See our relevant policies at ihgplc.com/responsible-business
Climate-related financial disclosures
In accordance with Sections 414CB of the UK Companies Act 2006, the required climate-related financial information disclosures can be found integrated throughout the Strategic Report, primarily in the TCFD report on pages 52 to 59.
Responsible procurement
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rowing our business innovatively and sustainably, while working to the highest standards of business conduct, plays a crucial role in
our supplier selection processes and in how we continue to work with our existing suppliers. We are committed to working with suppliers who not only meet our minimum ethical standards but also share the values of our responsible business plan – Journey to Tomorrow.
What we do already
Our supply chains are split between hotel and corporate spend. Hotel procurement predominantly occurs at the local level because our hotels are primarily owned by independent third-party franchisees responsible for managing their own supply chains. In some key markets, the IHG Procurement team has created procurement programmes for certain goods and services related to building, opening, renovating and operating a hotel, which hotels and owners can leverage. Our corporate supply chain covers expenditure areas such as technology, office buildings and facilities management, marketing and professional services.
To help manage and monitor our corporate supply chain, an enterprise-wide procurement system is in place to govern and oversee third-party corporate expenditure. We are also continuing to roll out procure-to-pay systems to support managed hotels. Several global technology and outsourcing providers have been identified as strategic supplier relationships given the nature of their services. IHG engages with these suppliers to harness innovation, provide customer service, manage risk, and promote value realisation. We annually review this list of strategic suppliers and their delivery of our business objectives.
We continue to integrate ESG pre-contract criteria in our supply chain due diligence activities. To ensure that suppliers operate with the same integrity and respect as we do, IHG requires new corporate suppliers to confirm their acceptance of the IHG Supplier Code of Conduct (Supplier Code) at the onboarding stage or demonstrate that they have equivalent policies in place. It is also a contractual requirement for centrally-negotiated programmes from which our hotels can purchase. Recommended guidance is additionally provided to managed and franchised hotels when purchasing locally. At the end of 2023, 100% of new suppliers had signed the Supplier Code.
Our spend intelligence tool is enriched with additional data feeds to provide a broader view of the supplier, including better visibility of IHG’s focus areas such as labour practices, supplier diversity, sustainability (including emissions), and financial risks.
IHG continues to comply with the statutory reporting duties on payment practices and performance.
Corporate and hotel supply activities are driven by our Procurement strategy and guided by our responsible business agenda, with oversight from IHG’s Responsible Business Committee and Audit Committee. In 2023, we continued to build our risk programmes with further resourcing and refreshed risk profiles based on IHG’s material supply chain risks. Recognising that global supply chain risks go beyond Procurement, we continue cross-functional collaboration through the Supply Chain Risk Council.
In 2023, we revised our Procurement Policy. Key updates included expanding its scope to cover above-property hotel deals, revised criteria on when to engage Procurement, supplier due diligence checks required in support of our Journey to Tomorrow ambition, and updated our standard payment terms.
Informed by a benchmarking exercise, we also revised our Supplier Code and translated it into 11 new languages. Some of the most significant evolutions were a refresh to environmental criteria, reflecting IHG’s Journey to Tomorrow commitments, and strengthening alignment with international human rights standards. With the additional translations of the Supplier Code, we have increased our ability to introduce it further across our supply chains.
Following the 2022 introduction of EcoVadis, a supply chain due diligence tool, in 2023 IHG became a founding member of the Hospitality Alliance for Responsible Procurement (HARP). The Alliance aims to improve supplier sustainability by fostering close collaboration with trading partners to build transparency and scale positive impact across the industry’s value chains while operating with the appropriate governance and compliance controls.
To date, we have requested 123 suppliers globally to participate in the EcoVadis ESG risk assessment and, where applicable, it has become part of our new supplier selection processes in 2023. Insights from the scorecards are used to understand supplier performance, identify ESG risks in our supply chain and work with suppliers to improve their sustainability performance.
With the use of a new digital solution, we made the first step towards segmenting our suppliers based on carbon emissions profiles. By mapping our carbon emissions from Purchased Goods and Services where we have data available, we gained visibility of the highest emitting categories.
Textiles are a substantial supply chain commodity in the hospitality industry and are integral to the operation of a hotel. In 2021, we partnered with CARE International UK and a key textile supplier to complete a workplace gender analysis. This year, CARE hosted two workshops to understand the supplier’s gender equality priorities, developed a gender action plan, and supported this with implementation guidance. Looking ahead, we will monitor all progress made by the supplier and provide support if required.
We will continue our goal to increase the consideration of sustainable, diverse and resilient suppliers and explore how EcoVadis can be further incorporated into our due diligence processes. Throughout 2024, the ongoing deployment of integrated procure-to-pay systems in managed hotels across various regions will enhance responsible procurement oversight. This will be achieved through group-configured systems, data management, streamlined processes, and enhanced controls. Working in partnership with our key suppliers, we will continue our supply chain mapping activities next year.
We will also continue to support the implementation of sustainable solutions to advance the progress of our Journey to Tomorrow commitments and build hotel supply chain solutions for energy conservation measures. Additionally, as part of our supplier decarbonisation initiative, we will begin to monitor and collaborate with key suppliers to minimise carbon emissions associated with the goods and services we procure.
Our risk management
The Board’s role – constantly evolving our resilience in a volatile environment
The Board is ultimately accountable for establishing a framework of prudent and effective controls, that enable risk to be assessed and managed. It is supported in this by the Audit Committee, the Executive Committee and delegated committees. Our governance framework and committee agendas enable Board members to request and receive information on risk from the Executive Committee and senior leaders, together with other internal and external sources. New Board members are fully briefed on risk discussions as part of their induction.
The delivery of IHG’s refreshed individual strategic objectives and overall ambition requires us to continuously balance opportunities for strategic advantage or efficiency with the need to remain resilient and agile in the short and longer term. The Board considers and defines its risk appetite and tolerance as an active part of determining our strategic priorities. We describe the Board’s approach to risk appetite on page 39, and management teams have also considered their attitudes to risk during 2023. We recognise the trade-offs inevitably required to achieve our growth ambitions between responding to individual uncertainties and the need to balance interests of multiple stakeholders. We have again faced significant individual
and accumulated uncertainties during the year from external events and IHG initiatives, which management has reacted to accordingly and built in to management processes. In order to enhance our risk management processes, we routinely look to apply learnings to continuously enhance our future resilience.
The description of the 2023 focus areas and activities for the Board and its delegated committees (see pages 90 to 142) demonstrates active ongoing consideration of emerging and evolving uncertainties across a wide range of topics and timeframes. The Audit Committee reviews the principal risks and the appropriateness of our risk management system, and considers risk and control implications of strategic topics, for example, supply chain risk management and future assurance requirements for ESG targets. Across the year, this discussion of risk, supported by the Risk and Assurance team, allows for review of the overall level of risk within the business, our resilience to individual and aggregated uncertainties and implications for strategic decision-making.
Further detail on formal risk appetite and tolerance is provided in this report. For example, our appetite for financial risk is described in note 24 to the Group Financial Statements.
See pages 199 to 203) and our approach to taxation on page 67.
How we think about and anticipate risk in relation to our strategic objectives
Like many companies, we continue to face a hugely dynamic and uncertain environment in 2024, which includes multiple realities from outside IHG and other inherent execution risks relating to our own internal initiatives (for example, the delivery of complex technology innovation, such as the evolution of our revenue management solutions and property management systems – see page 23 – and integrating Iberostar within our portfolio of brands and commercial platforms – see page 27). In this context, during 2023, we continued to keep the focus and balance of our principal risk profile under review with management teams to further reinforce ownership and enhance discussion of attitudes to risk and uncertainty within key decisions. The uncertainties we articulate as our principal risks often present both opportunity and threat at the same time and require considered decision-making to achieve the best overall outcome for our various stakeholders. The graphic below illustrates the relationship between these realities and our principal risks.
The headlines for our principal risks are materially unchanged, other than further clarifying the contributing factors and key elements of resilience. These were discussed with management teams during the year and when reviewing the rearticulated strategy with
teams in late 2023. Delivering our strategic objectives actively creates highly dynamic uncertainties with potentially fast impact. We continue to review trends carefully to evaluate the current behaviour of these risks relative to each other, and to discuss with management teams whether these trends create a need for a specific individual or portfolio-level response, including how leadership teams allocate their attention and the level of reporting visibility and assurance that may be required in 2024.
To extend our insight on how risks are evolving, we also completed a survey of key expert contributors to risk profiles across IHG. They were asked to evaluate potential trends for each risk as we move from 2023 into 2024, with the desired outcome to drive discussion by management on potential responses. Each Principal Risk scored an above-average risk rating, which suggests they are all trending upwards in the view of the survey participants.
How we consider emerging risks
Our business model and the long term nature of our relationships with our hotel owners mean that we must remain vigilant to emerging risks capable of impacting the achievement of our strategic priorities and also our longer-term growth, competitiveness, viability and sustainability.
We think about emerging risks as:
• new risks, or existing risks in a new context, when the nature and value of the impact is not yet fully known or understood; and
• factors with an increasing impact and probability over a longer time horizon.
As in previous years, there are emerging elements in many of our principal risks. These include continuing shifts in international and domestic real estate ownership, the increasing reach of regulations, consumer travel patterns and evolving demands, including the use of data and technology across all areas of the guest journey and the workplace implications of advances in Generative AI.
As part of our annual senior leaders meeting, IHG management review emerging and evolving megatrends with potential future relevance for IHG’s strategic ambitions, including society, technology and economic factors. Groups have been established to focus on key emerging topics, including
All principal risks are considered material in absolute terms. The graphic below shows an assessment of risk trending into 2024-26. We consider trending of inherent uncertainty levels (impact and/or likelihood) and velocity (potential speed of effect on IHG’s objectives). Further detail for each risk is provided on the following pages.
a Generative AI steering committee. We also have an ongoing focus on the risks of climate change through our TCFD governance structures, including the development of scenarios to help model and plan for future resilience.
g See also pages 14 to 15 for more detailed discussion of trends impacting our industry.
Management teams across IHG are aware of the challenges our current industry context creates, and that our ambition and strategic priorities inevitably expose us to uncertainty in the short, medium and longer term.
Our confidence in achieving our priorities is reviewed regularly:
• at the Executive Committee (see pages 97 to 100 for more detail of their remit);
• by first-line management teams with day-to-day responsibility for identifying and managing risk within key decisions, programmes and transactions and escalating where appropriate; and
• by second-line management functions, which provide specialist expertise, support, monitoring and challenges to decision-makers on risk-related matters.
The Risk and Assurance team works with first- and second-line teams to maintain and evolve risk profiles. During 2023, we observed extended discussions of existing and known risks, certain trends that are growing in focus and emerging risk factors that may impact us over the next 3-5+ years and which are being considered by various teams and external bodies.
How senior management and the Board obtain assurance in our risk management and resilience
The Governance section outlines focus areas and activities that enable the Board and its delegated committees to receive management updates on risks within key decisions. In addition, pages 45 to 49 explain how senior management and the Board are able to source ongoing assurance on our risk management and internal control system during the year and how actions may impact future risk levels.
Our risk management continued
The external Auditors and the Risk and Assurance team continue to monitor and engage the Audit Committee in relation to corporate governance developments. The Audit Committee will continue to consider its approach to sourcing assurance, for example, from direct reporting or attestations provided by first- and second- line management teams on risk and control matters. The third-line Internal Audit plan identifies where independent assurance may be valuable, taking into account the
maturity of management’s own reporting, and acceptable risk tolerances. Internal Audit also monitors the confidential disclosure channel to identify any emerging trends requiring management and/or Board intervention.
The Audit Committee considers future assurance needs within the Internal Audit planning process, and has also debated potential assurance considerations for non-financial data disclosures, with
incoming regulations in many territories. An assurance roadmap has been developed for carbon data, including where assurance can be obtained internally on controls and when external independent input may be necessary in the coming years.
This section should be read together with the rest of the Strategic Report, Governance on pages 90 to 142, the going concern statement on page 241 and Risk Factors on pages 243 to 247.
Strategic Report Our risk management continued The external Auditors and the Risk and Assurance team continue to monitor and engage the Audit Committee in relation to corporate governance developments. The Audit Committee will continue to consider its approach to sourcing assurance, for example, from direct reporting or attestations provided by first- and second- line management teams on risk and control matters. The third-line Internal Audit plan identifies where independent assurance may be valuable, taking into account the How we think about our risk management ‘system’ The risk management system remains fully integrated with the way we run the business, including how the Executive Committee reinforces key principles of culture and leadership (including ‘tone from the top’), how we adapt key processes and controls, and how monitoring and reporting is used to update on status and inform decision-making. Overall management have not made any material changes or repositioning of risk management and controls strategies, although several teams have reprioritised or bolstered maturity of management’s own reporting, and acceptable risk tolerances. Internal Audit also monitors the confidential disclosure channel to identify any emerging trends requiring management and/or Board intervention. The Audit Committee considers future assurance needs within the Internal Audit planning process, and has also debated potential assurance considerations for non-financial data disclosures, with activities in response to complexities of current work (for example, integration of partners and response to data regulation and geopolitical factors), and fast-paced technology initiatives (including HR and Finance system changes). During 2023, we also commissioned an external review of the maturity of IHG’s enterprise risk management arrangements, which has enabled us to identify opportunities to further enhance the design and consistent application of risk management activities in the coming years. incoming regulations in many territories. An assurance roadmap has been developed for carbon data, including where assurance can be obtained internally on controls and when external independent input may be necessary in the coming years. [This section should be read together with the rest of the Strategic Report, Governance on pages 90 to 142, the going concern statement on page 241 and Risk Factors on pages 243 to 248.] The identified areas of focus in the graphic below provide mitigation for many of the risks shown on the following pages. These should be read in conjunction with detail elsewhere in the Strategic Report, which helps to position IHG to respond to future opportunities and risks in delivering our ambitions, including strengthening our organisation through key strategic investments (pages 16 to 35), engaging proactively with stakeholders (pages 36 and 37) and by reinforcing our strong workplace culture (pages 38 to 40). We made adjustments and clarifications to several policies which articulate risk appetite and tolerance. Changes were made to delegated authority levels, supplier code of conduct, procurement, information security, anti-bribery, sanctions and gifts and entertainment policies. Our annual Code of Conduct training was relaunched and new corporate onboarding and executive leadership training introduced. All corporate colleagues received communications on topics such as human rights, handling information responsibly (including phishing training), DE&I, wellbeing and sustainability. Several teams evolved governance accountabilities and arrangements, including for supply chain risk oversight, fraud risk management and regional decarbonisation plans. We keep our processes and controls under review and in 2023, we undertook risk assessments for several targeted topics. This included initial privacy impacts within projects to leverage customer data for enhanced personalisation, human rights due diligence and the maturity of our fraud risk management framework in advance of upcoming UK legislation. Teams have implemented specific enhancements to process and control arrangements in relation to new country entry protocols for development teams, threat management for physical security risks, formalising and documenting privacy risk assessment processes and reviewing protocols for investigations arising from our confidential reporting hotline. The use of data and technology to enable risk management and control is a key focus. Several teams have evolved and enhanced monitoring and reporting arrangements (including cyber, safety, supply chain, loyalty, privacy, channels teams), for example, presenting refreshed key risk indicators. We have also developed technology tools and capabilities to support management of privacy, supply chain risk monitoring, human rights, financial governance, resilience and climate change risks. While risk management and internal control arrangements are designed to provide appropriate response to the risks we face, we also need to be prepared for fast-moving disruptions and crises. We do not need to be fully prepared for every ‘unknown’, but we need to harness our collective knowledge and insights to deliver an appropriate IHG response overall. We have continued to maintain our overall incident and crisis management framework, reviewing learnings from our response to the war in Ukraine and the unauthorised systems access experienced in 2022, and applying these to management teams’ response to conflict in the Middle East. Risk and Assurance and Commercial & Technology leadership have collaborated to conduct tabletop exercises for cyber incidents and to undertake business impact analysis of processes and dependencies for key booking channels and develop playbooks in relation to evolving data legislation.
In pursuing our ambition,
we face inherent
uncertainties relating to:
Why these uncertainties are important to the achievement
of our strategic objectives over the next 2-3 years
How senior management and the Board obtained
assurance in our risk management and resilience in 2023
Guest preferences for branded hotel experiences and loyalty
Executive Risk Sponsor:
Global Chief Customer Officer
Link to strategy:
In a highly competitive industry with increasing demands for personalisation, we must at all times anticipate and respond to evolving guest expectations, preferences and loyalty, while strengthening returns for the owners of our hotels through the services, technology platforms and experiences our brands provide, including ever increasing digitalisation of the guest journey.
Our strategic objectives and ambition mean we actively pursue opportunities for effective investment to support our new brands, our loyalty programme, new exclusive partners, our Luxury & Lifestyle ambitions and our digital platforms. We also aim to carefully deliver on fundamental expectations of our individual and corporate guests, underpinning their trust in, and loyalty for, our brands, for example, for cleanliness and safety, or in relation to our response to climate change and our brands’ impact on the environment.
We are very conscious that the macroeconomic environment remains highly uncertain and that customer sensitivity to price also remains heightened. There are also inherent uncertainties due to the way our business model operates and is evolving. As our franchised hotels operate as independent businesses, we are limited in our ability to control delivery on the ground in these properties and must introduce and implement guest experience initiatives effectively to support our owners.
If we are unable to manage this uncertainty effectively it could impact our competitive positioning, our growth ambitions and our guests’ and owners’ trust in and preference for our brands.
The Board considers reporting and insight from management, including on:
• individual and brand category, loyalty and responsible business strategies and investments;
• discussions led by regional CEOs of operational and strategic plans, including identified risks;
• new brand projects and potential opportunities to pursue exclusive partners and adjacencies;
• global sales strategies; and
• analysis of competitor activities.
External insight is obtained where valuable (for example, on responsible business strategies).
The Executive Committee also reviews these areas frequently, including analysis of specific trends (for example, business travel and commercial platforms) and has obtained insights on key brand strategies and performance and loyalty. The Executive Committee also remains focused on regional quality mechanisms to support guest experience and how we update standards. A global Guest Experience team and programme provides oversight of specific initiatives including Luxury & Lifestyle.
The Internal Audit plan also provides independent assurance on the execution of key initiatives (including loyalty, brand integration and responsible business), guest survey data integrity and hotel compliance management.
Owner preferences for or ability to invest in our brands
Global Chief Customer Officer and Regional CEOs
Our growth ambitions require us to take calculated risks to attract owners while continuing to drive returns for our existing and potential owners. Our owners’ choice to work with IHG is dependent on our ability to build a portfolio of loved and trusted brands with a track record in delivering returns, while also continuing to invest in our commercial engine, brands guests and owners love, and care for our people, communities and planet.
Continuing macroeconomic uncertainty and inflation create significant pressures on owners’ financial capacity that must be considered carefully as we pursue opportunities to drive brand preference and focus on relentless growth. Our owners have increasing choices in how they invest in a highly competitive market, and we need to move fast to pursue opportunities in relation to hotel building, hotel conversions, renovations and hotel opening projects, while evolving and enhancing our brand portfolio and continuing to drive loyalty delivery across our open hotels.
These opportunities need to be balanced with the risks associated with increasingly complex deal structures with owners and other possibilities for new strategic relationships, uncertainties as we expand into new markets and a need to risk our own capital to pursue inorganic growth or to incentivise deals in key locations for key brands. We also recognise our responsibilities as a franchisor or manager of our brands (including our role in hotel safety and security, ethical and social matters, and increasing expectations in relation to decarbonisation).
If we fail to respond effectively to this risk, we will lose competitiveness and may not realise the opportunities to grow our brand footprint.
The Board considers reporting and insight from management on:
• individual and brand category performance and market prioritisation strategies;
• opportunities for new brands, exclusive partners and adjacencies and analysis of the competitor landscape;
• performance of existing exclusive partners and commercial agreements;
• responsible business strategies and investments;
• impacts of macro events (including conflicts in the Middle East) and impacts on specific markets;
• performance and prospects for key areas of capital investment, including controls over growth decision-making and post-project reviews of investment effectiveness; and
• external insight where valuable (for example, on investor perceptions).
The Executive Committee also reviews these areas frequently and obtains reports on loyalty and brand performance and initiatives, including implementation of owner-facing technology and revenue management systems, and specific market strategic considerations.
The Internal Audit plan provides independent assurance on initiatives supporting owner returns, for example key owner-facing systems, initiatives such as loyalty programme enhancement and key processes including talent management for Luxury & Lifestyle GMs.
Our ability to attract and retain talent and capability
Chief Human Resources Officer
Our growth ambitions are dependent on high-quality talent across our hotels, reservations offices and corporate functions. We continue to face a competitive market and uncertainties in relation to the availability, recruitment and retention of sufficient quality, quantity and diversity of talent, for example, next-generation hotel GMs to support our Luxury & Lifestyle growth and a robust pipeline of leadership succession talent.
Our priority to care for our people, communities and planet also means that we need to balance short- and longer-term growth risks and opportunities with our broader responsibilities and commitments. This requires us to enable colleague development and growth, to look out for our colleagues’ wellbeing during the current cost of living crisis in many locations we operate within, and to maintain productivity, collaboration and appropriate labour relations. This also necessitates continued adaptation and innovation of our operational procedures and remuneration structures to be agile to the changing interests of our stakeholders.
IHG has the ability to manage talent and retention risks directly in relation to IHG employees but relies on owners and third-party suppliers to manage these risks within their businesses. Our Procurement, Legal and Risk teams also consider indirect workforce risks.
If we do not anticipate and respond appropriately to this uncertainty, it could impact our ability to operate and grow hotels, the effectiveness and efficiency of our key corporate functions and executive leadership, and it could heighten risks of exposure to non-compliance or litigation.
• overall HR and talent strategy;
• remuneration and incentive strategy and policy, including directors and executive management and wider structures for all colleagues, supported by external advisers;
• specific talent and succession planning;
• DE&I updates; and
• direct employee feedback via the Voice of the Employee programme.
The Executive Committee directly reviews talent (both as a group and through individual talent reviews with the CEO) and receives regular updates on colleague engagement and broader culture and behaviours. The HR team also has a dedicated Talent & Leadership steering committee. Regular all-employee calls are held with the Chief Executive Officer, and there are ongoing leadership communications and virtual team meetings at regional and functional levels.
The 2023 Internal Audit plan has provided independent assurance on employee relations management, recruitment of critical GM talent and implementation and data integrity checks within a strategic HR system transformation.
Data and information usage, storage, security and transfer
Chief Commercial and Technology Officer, Chief Customer Officer and Executive Vice President General Counsel and Company Secretary
By its nature, our business involves the management of large volumes of data globally and our stakeholders (including guests, loyalty members, colleagues, owners and external authorities) expect that this will be done safely and responsibly.
Our strategic objectives continue to transform how we use our commercial and marketing data to improve and personalise the customer experience, grow loyalty and empower our owners to make better decisions. This involves a roadmap engaging many IHG teams in many initiatives, including increasing use of cloud-based applications, storage and partnering with third-party specialists, as well as exploiting technology advancements and innovation, involving the use of personal data and artificial intelligence. Our growth strategies, including new business partnerships, also increase the complexity of data flows.
The opportunities presented by this ambition are consciously balanced with the inherent exposures our digital footprint presents to data, information security and privacy-related threats, including threat actors (e.g. criminals, third parties and inherent colleague risk), and the need to demonstrate to stakeholders that we are using data appropriately. This includes an evolving global and local regulatory environment and requirements for localisation of data in certain territories. Our ability to deliver our strategies confidently is based on investments in recent years in cybersecurity and information governance and the maturing of our risk management system.
If we fail to respond to this risk effectively, we face operational, financial and reputational impacts to the range of high-value assets we are responsible for, or we may miss chances to capitalise on the opportunities that effective use of data can bring, including to our guests, owners and loyalty members. In addition, if the data we use is not accurate, this may impair decision-making and/or lead to lack of trust or satisfaction by our guests, loyalty members or owners.
The Board considers reporting and insight from management, including:
• governance over developments in cross-border data transfer arrangements to respond to evolving regulation;
• direct presentations from the Chief Information Security Officer, including third-party expertise on risk assessments, progress on the information security roadmap and advice on specific topics;
• within the wider roadmap, specific lessons learned and initiatives to further enhance security posture following the criminal unauthorised system access event in 2022 and to respond to the ongoing dynamic cybersecurity threat environment;
• information on emerging risks and opportunities of generative artificial intelligence, how management teams are considering these risks and how they relate to the broader assessment of principal risks;
• updates on the cyber insurance renewal strategy;
• second-line reporting on our privacy programme and policies for handling information responsibly; and
• updates on metric integrity, including review of ESG data principles and future assurance arrangements, supported by third-party experts.
The Executive Committee reviews specific areas of digital strategy, for example in relation to Greater China, and receives briefings from the Chief Information Security Officer on emerging risks during the year.
The Internal Audit plan includes independent focus on governance of both cybersecurity and data and information, assurance on foundational controls at both corporate and hotel levels and, for example, in relation to data transfers within our loyalty programme, third parties and cloud environments.
Ethical and social expectations
Executive Vice President General Counsel and Company Secretary, Executive Vice President Global Corporate Affairs and Chief Human Resources Officer
As IHG operates in more than 100 countries and continues to explore new opportunities for growth, we are continually exposed to evolving expectations from our stakeholders in relation to ethical and responsible business conduct, extending beyond compliance with laws. We are committed to monitoring, reinforcing and communicating the continued effectiveness of our human rights approach, our social responsibility and environmental performance, and recognise that expectations are increasing for us to manage and drive ethical and responsible business through our supply chains and across our wider business, which involves extensive engagement with our franchisees around the world.
Our stated priority to care for our people, communities and planet creates risks and opportunities in relation to our growth ambitions, including how we build brands which guests and owners love while also considering our wider stakeholder responsibilities, including to our colleagues, guests, workers in our supply chains and our local communities in a challenging operating environment in many markets. We manage these risks carefully so as to operate responsibly and with integrity, and to guide decision-making across IHG’s corporate and hotel operations.
If we fail to effectively respond to this risk, it has the potential to impact our performance and growth in key markets as well as cause reputational damage with respect to key stakeholder and investor expectations.
• requests for Board approval of the Code of Conduct, the Supplier Code of Conduct, the Communities Policy and the Human Rights Policy;
• second-line reports on ethics and compliance strategy, including external benchmarking where appropriate (e.g. Transparency International UK’s Corporate Anti-Corruption Benchmark);
• reports from Internal Audit on confidential reporting arrangements and updates from our Voice of the Employee programme;
• updates provided and awareness raising from the external Auditor on ESG and climate-related reporting and from external specialist advisers; and
• further second-line function reports on our communities, human rights and responsible procurement programmes and key disclosures including the Modern Slavery Statement.
The Executive Committee monitors our ambition and commitments to our people, communities and planet, including the progress of set initiatives and how these objectives interrelate to our growth strategy.
The Internal Audit plan includes independent focus on ethics and compliance, including consideration of management and external assessments of maturity, controls relating to marketing and commercial campaigns, due diligence controls and broader ESG-related programme governance.
Legal and regulatory complexity or litigation trends
Executive Vice President General Counsel and Company Secretary
The global business regulatory and contractual environment continues to evolve rapidly, with ongoing legislative changes in many jurisdictions that will affect the way in which we operate our existing business and where we target growth or digital innovation. This includes the nature of our franchise relationships with hotel owners, our interactions with our suppliers, and our responsibilities to consumers and to colleagues. We consider such exposures carefully as part of our decision-making, drawing on an extensive network of legal advisers.
These changing laws and regulations continue to add complexity and uncertainty to compliance, particularly where there are diverging standards between territories (for example, in relation to increasing protections and conditions on cross-border data transfer). The ongoing use of sanctions and countermeasures as foreign policy tools also continues to present operational challenges and associated legal and regulatory exposures.
We recognise that failing to address this risk effectively, and non-compliance and/or inadequate compliance, could expose us to regulatory breaches, significant monetary and non-monetary penalties, adverse litigation and associated reputational harm which could impact confidence in the IHG brand and our ability to perform in key markets.
• corporate governance and regulatory developments from the General Counsel and the external Auditor;
• relevant corporate affairs topics, including briefings from external advisers;
• material litigation matters and serious operational safety and security incidents and threats;
• second-line updates on specific regulatory matters, including tax, as well as fraud risk management controls, supported by external insight and benchmarking where appropriate;
• regional trends within Regional CEO updates; and
• management strategies to procure appropriate insurance coverage, including for casualty, property, cyber and directors’ and officers’ liability risks.
The Executive Committee also actively monitors the management of key regulatory and/or litigation risks, including developments in cross-border data transfer regulation.
The Internal Audit plan considers regulatory management and provides independent assurance on the proportionality of controls: for example, due diligence protocols for vendors and owners, third-party guest data management and broader contract management.
Global and local supply chain efficiency and resilience
Chief Financial Officer, Chief Commercial and Technology Officer and Executive Vice President General Counsel and Company Secretary
In an increasingly interconnected world, our strategic ambitions require us to expand our interdependencies with third parties to access capabilities and innovation and to source cost-efficient products or services from available markets to support our owners. We need to balance these opportunities with early identification and resilience planning for anticipated and unanticipated emerging risks.
Macroeconomic uncertainties, including geopolitical tensions, commodity price shifts and labour disputes, continue to impact supply chains, which may increase costs and limit availability of materials, including to open and operate hotels. Our ability to respond to these uncertainties presents both a threat and a competitive opportunity, and may occasionally require us to consciously expose ourselves to increased risk to secure and safeguard supply chains for our owners.
As we pursue our ambitions as a responsible company, we recognise that the regulatory environment continues to evolve, with increasing demands for transparency across global supply chains, requiring us to scan the horizon for emerging risks to IHG’s objectives. We also need to remain vigilant to threats to information security as we work with an increasing range of third-party suppliers.
If we fail to effectively address the uncertainties that this risk presents, including through closer alignment with our suppliers and across supply chains to enhance our resiliency, this may impact the design, opening and operation of hotels, the ongoing effectiveness of our commercial channels and margins for our owners, as well as fees to IHG.
• presentations by second-line functional leaders on supply chain risk management to the Responsible Business and Audit Committees, including wider third-party risk management and internal control arrangements; and
• clarifications of risk management arrangements within presentations on new business models and relationships.
The Executive Committee reviews our operational risk posture in relation to key digital initiatives, including the transformation of hotel technology arrangements, and has approved a refreshed Procurement policy during 2023.
The Executive Risk Sponsors receive updates from the Chief Procurement Officer on supply chain strategy and risks, supported by a Supply Chain Risk Council, which draws on external insight where appropriate.
The Internal Audit plan provides independent review of third-party and contract risk management as well as control arrangements, for example, relating to technology resilience and data governance, and in relation to due diligence relating to responsible and ethical vendor sourcing.
Operational resilience to incidents or disruption or control breakdown (including geopolitical, safety and security, cybersecurity, fraud and health-related)
Executive Vice President General Counsel and Company Secretary, Chief Financial Officer, Chief Commercial and Technology Officer and Regional CEOs
The high growth, fast pace and increasingly complex nature of our global business and our growth ambitions exposes us to a growing range of inherent operational risks and places ever greater importance on the overall resilience of key processes, applications and relationships that we depend upon. We aim to avoid harm to, and enhance the reputation of, IHG and our brands, and to support our people and communities wherever possible.
We recognise that we need to prepare for predictable and unpredictable uncertainties, from macro external to internal disruptions. This preparation includes considering fire, life safety and security threats including from geopolitical volatility, health-related concerns and natural disasters impacting our hotels and corporate locations. We need to be able to respond to disruption to technology and information security from external threats and operational breakdown. We also need to anticipate the potential for breakdowns in our financial management and control systems, including the risk of fraudulent behaviour, which may be heightened in the current challenging economic environment.
The complexity of our evolving global and regional business model and the introduction of different commercial arrangements and adjacencies also include inherent uncertainties, for example, in relation to our ability to control and influence day-to-day operations in our franchised estate, or in our ability to balance ongoing robustness of controls while we actively pursue opportunities for efficiency.
Building resilience not only supports IHG’s long-term viability but also enables us to take advantage of opportunities to drive growth and strengthen returns for our owners. However, if we fail to respond effectively to this risk it could impact IHG’s reputation, lead to financial loss and claims against IHG and undermine our stakeholders’ confidence in our brands.
• second-line reporting to the Audit Committee on operational safety and security arrangements and reported serious incidents and threats;
• ongoing review of incident handling (including ad hoc updates as required and within a broader review of our risk management system), describing how management teams are coordinating efforts;
• reports to Audit Committee from the second-line financial governance team, including control implications for managed hotels and major technology and process changes;
• an annual review by Risk and Assurance of fraud risk management activities; and
• an independent assurance by PwC of SOC1 control reports provided for the benefit of hotel owners.
The Executive Committee is closely involved with emerging incidents to consider the appropriateness of management action plans to deal with disruption. There is also an established Financial Control Steering Committee, which brings together various functions and discusses risks to financial controls, including fraud risk management.
Internal Audit provided an independent review of key functional resilience capabilities, including scenario planning, third-party technology resilience and reports on the governance of service organisation controls.
Our ability to deliver technological or digital performance or innovation (at scale, at speed, etc.)
Chief Commercial and Technology Officer and Global Chief Customer Officer
Delivering our portfolio of technology investments effectively and efficiently is a fundamental enabler of our short- and long-term strategic priorities. We continue to pursue opportunities to innovate in booking technology, to maintain and enhance the functionality and resilience of our channel management and technology platforms (including those of third parties, on which we rely directly or indirectly), and to respond to ever-changing stakeholder needs and preferences, which may evolve rapidly in an environment of macroeconomic uncertainty and significant cost and labour pressures.
This context will require us to generate value by defining and implementing new technology-based products or services or by approaching existing products, services or processes in new ways that generate revenue or reduce costs for our owners. We will need to maintain the right balance between disruptive, sustaining and incremental innovation and, in doing this, we will often consciously expose ourselves to uncertainty.
We are pursuing a high paced, multi-year roadmap of significant investments to enhance the performance of our technology, developing our own talent and working with a wide range of suppliers, partners and academic institutions to leverage their insights, while the pace of innovation and competition in digital behaviours in the hospitality industry and wider society continues to accelerate rapidly. This involves leveraging Generative AI to improve guest experiences, generate personalised marketing, expand analytics capabilities and improve effectiveness and efficiency, including in-hotel operations.
If we fail to address this risk, we may not capitalise on opportunities to maintain or increase guest and owner preferences for IHG and its brands and/or reduce our resilience on ageing channel management and technology platforms (including those of third parties, on which we rely directly or indirectly).
• our China digital strategy and the integration of our commercial and technology platforms within our Iberostar Beachfront Resorts partnership;
• options for technology to support more effective and efficient collation of ESG data across our global estate;
• budget allocation, including funding of key technology products and post-project reviews by finance teams of major capital investments; and
• information security strategy and risk profile.
The Executive Committee considers the pace of innovation and delivery of key technology initiatives relating to mobile, loyalty and booking transformation and hotel technology. This involves identifying critical enablers and prioritising investments. The Global Marketing and Commercial & Technology teams coordinate a joint technology roadmap, and a dedicated Generative AI steering committee monitors opportunities across various IHG processes and teams.
The 2023 Internal Audit plan included focus on programme governance and the effectiveness of controls over expenditure and benefit delivery for various critical functional and guest and owner-facing technology initiatives. This has provided independent assurance in relation to overall programme management, tracking and financial governance controls, and delivery of initiatives at high pace across the hotel estate and within the loyalty transformation programme. The team also continues to support and advise several programme teams in real time, including on HR system changes.
The impact of climate change on hospitality (physical and transition risks for IHG)
Chief Financial Officer and Executive Vice President Global Corporate Affairs
As a global business with a portfolio of brands in over 100 countries, IHG faces fast-evolving stakeholder expectations and uncertainties relating to our ability to continue to operate and grow in an environment impacted by physical and transition risks relating to climate change.
Our business model means that we share these threats and opportunities with our owners, including our dependency on their capacity to invest in the short- and long term. We will continue to set ambitious targets, to assess the aggregate impact of climate change and to capitalise on opportunities that the low-carbon transition will bring for the hospitality industry by responding to evolving guest and colleague preferences.
Our TCFD assessment considers both physical and transition risks to IHG, and we will continue to assess the aggregate impact of climate change on our wider stakeholders including our third-party hotel owners.
The potential impact of climate change-related uncertainties is evaluated as an integral part of other principal risks; however, if we fail to react to physical and transition risks effectively overall, then this has the potential to impact IHG’s reputation, performance and growth in key markets. Our management of these risks is also subject to scrutiny from a wide range of stakeholders, including regulators and investor groups, corporate clients, guests and colleagues.
• reporting from corporate responsibility on TCFD disclosures and the embedding of climate considerations into strategy, governance, risk management and performance management, supported by external subject matter expertise; and
• updates from various second-line teams on approaches to ESG data disclosure and future strategies for assurance (including to comply with changing regulatory requirements).
The CEO, CFO, General Counsel and EVP Global Corporate Affairs have executive oversight of our TCFD reporting and the embedding of climate considerations into our wider business growth strategy. Oversight of the Journey to Tomorrow programme is provided by the Executive Responsible Business Governance Committee.
The Head of Internal Audit supports the TCFD programme efforts, including advising on the approach to data collection and data assurance. This group is also advised by external experts. Internal Audit has also reviewed broader ESG programme governance.
Viability statement
Looking forward, the Directors have determined that the three-year period to 31 December 2026 is an appropriate period to be covered by the viability statement. The Group’s annual financial planning process builds a three-year plan. This detailed plan takes into consideration the principal risks, the Group’s strategy and current and emerging market conditions. The plan then forms the basis for strategic actions taken across the business and is used as the basis for longer-range planning. The plan is reviewed annually by the Directors. Once approved, the plan is then cascaded to the business and used to set performance metrics and objectives. Performance against those metrics and objectives is regularly reviewed by the Directors.
Viability scenarios and assumptions
In performing the viability analysis, the Directors have considered a ‘Base Case’ which assumes global RevPAR in 2024 to 2026 continues to grow in line with market expectations in each of our regions. The assumptions applied in the viability assessment are consistent with those used for Group planning purposes, the going concern assessment, for impairment testing and for reviewing recoverability of deferred tax assets (see further detail on page 161).
The Directors have also reviewed a ‘Severe Downside Case’ which is based on a severe but plausible scenario equivalent to the market conditions experienced through the 2008-09 global financial crisis. This assumes that the performance during 2024 starts to worsen and then RevPAR decreases significantly by 17% in 2025 and increases by 5% in 2026.
The relative strength and resilience of the IHG business model to severe shocks has been proven by performance through the Covid-19 pandemic, with positive cash flows being generated through one of the most challenging periods of trading in the history of the industry. In assessing the viability of the Group, the Directors have considered the impact of the principal risks as outlined on pages 42 to 49. The discussion on those pages includes a description of why these risks are important to the achievement of our objectives and how the Group manages these risks.
We have considered which principal risks could have the most significant and direct impact to the viability of the Group during the three-year period of assessment and they are shown below, alongside the scenario that is used to model those risks.
Changes in RevPAR
Severe Downside Case
This scenario models a prolonged decrease in RevPAR, which may be driven by external or internal factors.
Operational resilience to incidents or disruption or control breakdown
Guest preferences or loyalty for branded hotel experiences
Talent and capability attraction or retention
Our ability to deliver technological or digital performance or innovation
One-off events
This scenario models the impact of a specific material incident, which could relate to cybersecurity or an alternative material impact on the cash flow statement.
Data and information usage, storage and transfer
a Definitions for Non-GAAP measures can be found on pages 84 to 88. Reconciliations of these measures to the most directly comparable line items within the Group Financial Statements can be found on pages 226 to 231.
We have considered the potential impact of the severe downside scenario on our net system size growth. We do not believe a change in system size growth would have a material impact on the Group during the period under review.
We have also considered the principal risks that may impact the viability of the Group over a longer period; for example, the impact of climate change on hospitality. The physical and transition climate risks to which IHG is most exposed are discussed in the TCFD statement on pages 52 to 59. Physical risks are not considered material to the long-term viability of the Group, and transition risks present both opportunities and risks. Whilst some transition risks have been assessed as being potentially material to the Group over the next one to five years under a 1.5°C scenario, this scenario is not considered a likely outcome leading to the probability of a material impact on the Group’s viability assessment through 31 December 2026 as low.
Funding
Viability assessment
At 31 December 2023 the Group had cash and cash equivalents of $1,322m plus an undrawn bank facility of $1,350m.
Under the Base Case and Severe Downside Case the Group is forecast to generate positive free cash flow over the 2024-26 period and the bank facility is undrawn. The principal risks that could be applicable have been considered and are able to be absorbed within the covenant requirements.
Under the Severe Downside scenario, there is also headroom to the covenants over the 2024-26 period to absorb multiple additional risks; for example, additional RevPAR impacts and a widespread cybersecurity incident. The bank facility would remain undrawn.
The Directors reviewed a number of actions that could be taken if required to reduce discretionary spend, creating substantial additional headroom to the covenants.
The Directors reviewed a reverse stress test scenario to determine what decrease in RevPAR would create a breach of the covenants and the cash reserves that would be available to the Group at that time. The Directors concluded that it was very unlikely that a single risk or combination of the risks considered could create the sustained RevPAR impact required to breach the covenants, except for a significant global event.
None of the scenarios modelled indicates that a covenant amendment would be required but, in the event that it was, the Directors believe it is reasonable to expect that such an amendment could be obtained based on experience of negotiating the waivers and amendments during 2020. The Group also has alternative options to manage this risk, including raising additional funding in the capital markets. We continue to plan to maintain an investment-grade credit rating which provides good access to the debt capital markets.
The Group’s $1,350m revolving credit facility was extended by one year in 2023 and now matures in 2028 (‘the bank facility’).
There are two financial covenants in the bank facility – interest cover and leverage ratio. The interest cover covenant requires a ratio of Covenant EBITDA to Covenant interest payable above 3.5:1 and the leverage ratio requires Covenant net debt to Covenant EBITDA below 4.0:1. In the event a covenant test was failed whilst the bank facility was undrawn, the facility could be cancelled by the lenders but would not trigger a repayment demand on the bonds which threatened the viability of the Group. See note 24 in the Group Financial Statements for further details.
In November 2023 the Group issued a six-year €600m bond. During the assessment period there is a €500m bond maturing in October 2024, a £300m bond maturing in August 2025 and a £350m maturity in August 2026. It has been assumed that the bond maturing in 2024 will be repaid from cash reserves and the 2025 and 2026 bonds will be refinanced up to one year before maturity.
Conclusion
The Directors have assessed the viability of the Group over the three-year period to 31 December 2026, taking account of the Group’s current position, the Group’s strategy and the principal risks documented in the Strategic Report. Based on this assessment, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period to 31 December 2026.
See also our business model on pages 10 to 13, the going concern assessment on page 161, and the impact of the principal risks on pages 42 to 49.
Delivering on the
recommendations of TCFD
Compliance with Listing Rule 9.8.6(8)
We confirm that our disclosures are in line with the UK Listing Rule 9.8.6(8) and are consistent with the TCFD recommendations and the Guidance for All Sectors. We recognise that our disclosures are limited in part by current data availability and are working with our hotel owners to improve our data and underlying assumptions.
We have outlined our focus areas for evolving our disclosure to improve consistency with the TCFD recommendations, and will provide an update on our progress against these in the 2024 Annual Report.
We are also continually tracking emerging climate regulations, including specific requirements for the reporting and disclosure of climate change risk, and we will take steps to align to the UK Sustainability Disclosure Requirements, when applicable.
IHG’s governance around climate-related risks and opportunities.
52 to 53
• Prepare TCFD disclosure for regulatory updates from the UK Sustainability Disclosure Requirements.
Scenario analysis
An overview of the scenario analysis used to assess business resilience against climate risks and identify potentially significant risks and opportunities. This overview provides insights into the outcomes of the analysis and outlines the mitigation actions we are implementing to enhance our business resilience.
53 to 56
• Enhance the quality of data capture to measure risks that have been identified as potentially significant.
• Continue to build business resilience against the identified climate-related risks and opportunities, including physical risks.
• Develop a roadmap to quantify direct and indirect impacts of climate-related risks and opportunities for future disclosure, where material.
Transition plan
Our plan to make progress towards our science-based target (SBT) to reduce GHG emissions across our estate by 46% by 2030.
56 to 58
• Evolve our decarbonisation strategy to align with the Transition Plan Taskforce (TPT) best practice guidance on developing an effective transition plan in line with regulatory updates.
How IHG identifies, assesses and manages climate-related risks.
59
• Continue to enhance integration of IHG’s climate-related risks and opportunities into our risk management framework and business decision-making processes.
Metrics
and targets
The metrics and targets used to assess and manage relevant climate-related risks and opportunities, where such information is material.
KPIs on
page 63
• Continue to improve data collection to develop and align metrics and targets to the TCFD’s recommended cross-industry metrics and targets, focusing on the management of climate-related risks and opportunities most relevant for IHG.
Please see individual sections of the TCFD disclosure for further references to supplementary information.
Governance and management of climate-related risks and opportunities
Board oversight of climate-related risks and opportunities
Our approach to responsible business is driven by a culture of strong governance and supported by robust policies. The Board oversees the Group’s strategy, considering our decarbonisation strategy as an integral component and ensuring effective controls and risk management systems are in place. It holds teams accountable for managing IHG’s climate risks and assessing performance against climate targets.
See our Governance section on pages 89 to 142.
The Chairs of the following Board Committees also provide advice to the Board on risk topics within their respective remits, all of which encompass the consideration of climate-related risks:
The Responsible Business Committee
The Responsible Business Committee advises the Board on IHG’s responsible business strategy and objectives, which covers climate change within the context of our wider Group Strategy. The Committee provides oversight of our Journey to Tomorrow goals, transition plan and decarbonisation commitments, including recommending and reporting progress on ESG Long Term Incentive Plan (LTIP) measures to the Remuneration Committee.
See pages 112 and 113 for more on our 2023 Responsible Business Committee Report.
The Audit Committee
The Audit Committee is responsible on behalf of the Board for reviewing IHG’s climate-related risks and opportunities as identified by management, and ensuring that IHG maintains robust risk management and internal control systems to manage climate impact. The Audit Committee also reviews the integrity of IHG’s financial reporting and the potential impact of climate change, and considers data validation, assurance and controls around non-financial ESG data.
See pages 107 to 111 for our Audit Committee Report.
The Remuneration Committee
The Remuneration Committee determines the Executive Board, Executive Committee and Chair of the Board remuneration and reviews wider workforce remuneration to ensure this is aligned with the interests of shareholders, the UK corporate governance environment, and our environmental and climate-related goals.
To further embed our climate goals across the business and ensure accountability at the senior level, the Remuneration Committee, as advised by the Responsible Business Committee, has incorporated ESG measures, including relating to our carbon commitment, into the LTIP and reports to the Board on progress against these measures.
Find more details of our Directors’ Remuneration Policy at ihgplc.com/investors/corporate-governance/directors-remuneration-policy.
See page 59 for more details of our metrics and targets, including remuneration.
Management’s governance of climate-related risks and opportunities
The management of climate-related risks and opportunities is the responsibility of our Executive Committee, with execution at the operational level overseen by the TCFD Steering Committee and the Regional Decarbonisation Steering Committees (see diagram below).
The TCFD Steering Committee has responsibilities for identifying and reviewing potential impacts of climate-related risks and opportunities, measuring their impact and integrating climate scenario analysis into our business strategy. We introduced Regional Steering Committees in 2023 to oversee development as well as implementation of regional decarbonisation strategies, reflecting the need for approaches tailored to different geographies.
The Chief Sustainability Officer is responsible for monitoring progress against our carbon reduction commitment and reporting progress to the Executive Committee and the Responsible Business Committee.
Stakeholder engagement
The relationships we build with our stakeholders are critical to informing our business decisions and delivering on our purpose of providing True Hospitality for Good. Understanding and balancing the interests of our stakeholders is intrinsic to good governance. It provides a foundation against which we measure ourselves, to protect our reputation and develop our commercial and social awareness.
To guide our work and ensure that we can plan and prioritise our impact, we regularly conduct materiality assessments of ESG issues, which helps us to focus on issues that are the most relevant to society, our industry and the long-term success of IHG.
See pages 36 and 37 for our approach to stakeholder engagement.
See pages 13 to 15 of our 2023 Responsible Business Report for more details of our materiality assessment and climate-related stakeholder engagement.
Strategy
The Executive Committee and Board regularly assess the impact of climate change on IHG within their decision-making processes. It is acknowledged not only as one of our 10 principal risks but also as an integral component of our business strategy, aligning with our fourth strategic priority, ‘Care for our people, communities and planet’.
We address climate-related risks through this priority and our Journey to Tomorrow programme, which includes critical elements relating to carbon and energy that form the basis of our transition plan.
This section describes our key climate-related risks and opportunities, their potential impact on our business, and its resilience to such impacts, which has been assessed using scenario analysis.
See page 19 for an overview of IHG’s four strategic priorities, including ‘Care for our people, communities and planet’.
See our 2023 Responsible Business Report for more on our decarbonisation strategy and performance.
See how the Board considered strategic and operational matters on page 101 and 103.
recommendations of TCFD continued
Identifying and assessing IHG’s climate-related risks and opportunities
While our principal risks outline uncertainties that might threaten the ability to achieve our objectives throughout our business plan, climate change has the potential to impact IHG’s prospects over a range of future temperature scenarios and time horizons.
With the support of external experts, we have undertaken scenario analysis to identify and assess which climate-related risks and opportunities are most relevant and potentially impactful for IHG over the short, medium and long term. Our analysis focused on the assessment of both transition and physical climate change uncertainties across all hotels in our three regions (Americas, EMEAA and Greater China) under three different temperature scenarios and timeframes, as outlined in the adjacent tables.
Our climate scenario analysis identifies risks as having a ‘potential impact’ on IHG if they could directly impact revenue, costs or IHG’s reputation without mitigation. Our qualitative assessment of climate impacts on IHG’s financial performance considered future revenue growth from our 10-year business plan and aligns with long-term market growth rates projected to 2050.
While scenario analysis is not designed to deliver precise forecasts, we are actively enhancing and refining our data and assumptions to evolve the transparency of our TCFD disclosure to cover both quantitative and qualitative impacts in future. We will look to determine the materiality of climate-related risks and opportunities following the same criteria used to determine the significance of other information in our financial filings.
See the forward-looking statement on page 263.
Our initial analysis was conducted during a period of pronounced variability in the recovery of the hospitality industry following the Covid-19 pandemic. This situation led to limited visibility in forecasting. Our assessment is now based on an assumption of reduced volatility in the medium- and longer-term outlook.
We prioritise climate-related uncertainties that we feel could be most significant to IHG and our stakeholders, building our business’s resilience to climate change by embedding operational decision-making and business processes that appropriately consider and address climate-related risks. Since our 2022 report, we have evolved the framing of our identified climate-related risks and opportunities to consider potential qualitative impacts across all relevant risk categories. We have also begun to assess chronic physical risks in addition to acute
ones, and we will review how these and the wider impacts considered on pages 55 and 56 can be factored into future quantification.
Determining the significance of climate-related risks and opportunities to IHG
In preparing our 2023 Annual Report, the potential impacts of climate change have been considered. There are no climate-related estimates and assumptions that have a material impact on asset values in the Group Financial Statements (see page 172). While there is currently no material medium-term impact expected from climate change, the risks attached to climate change
continue to evolve, and these will be assessed against the Group’s judgements and estimates.
We acknowledge the interconnectedness of the specific risks outlined on pages 55 and 56 and the overarching risk posed by climate change to both our hotel owners and IHG. The cumulative impact of climate-related risks has the potential to influence the overall appeal of investments in the industry at a broader scale. In the future, we will assess the aggregate impact on our wider stakeholders, including our hotel owners.
Short
(1–5 years)
Medium
(6–15 years)
Long
(16–30 years)
a To assess potential physical impacts, we have aligned the temperature rise scenarios in our analysis with the Intergovernmental Panel on Climate Change’s (IPCC) 1.5°C, 2°C and 4°C aligned Representative Concentration Pathways (RCPs) 2.6, 4.5 and 8.5, respectively.
b To assess potential transition impacts, we have based our analysis on the International Institute for Applied Systems Analysis’ (IIASA) Shared Socioeconomic Pathways (SSPs) to capture how societal, economic and technological trends could evolve over time and under three selected temperature rise scenarios.
However, we believe by taking action to decarbonise, we can drive long-term business value for both our hotel owners and all other IHG stakeholders. We can enhance the IHG Hotels & Resorts masterbrand by reducing our environmental
See page 162 for critical accounting policies and the use of judgements, estimates and assumptions.
Unmitigated potential risks and opportunities
to build business resilience
IHG’s ability to decarbonise in line with stakeholder expectations
Potential short term (1-5 years) impact under a 1.5°C scenario, if unmitigated
Our key stakeholders have increasing expectations for businesses to influence positive change and deliver on their environmental commitments. This includes increasing questions from corporate clients and regulatory intervention by governments.
Decarbonising our business in line with expectations presents a potential opportunity for IHG to enhance its brand, by supporting owners to decarbonise and capture a greater share of guests seeking more sustainable hotels. Failure to meet expectations could cause reputational damage.
Reputational:
In scenarios projecting global temperature increases of 1.5°C, 2°C and 4°C, our analysis showed a potential reputational impact of IHG not decarbonising in line with stakeholder expectations in the short-term, if unmitigated. Under a 1.5°C scenario, this impact would remain a potential impact in the medium to long term if IHG fell further behind competitors and peers in meeting its carbon target. Alternatively, IHG may outperform peers and enhance the sustainable reputation of the IHG brand. Under a 4°C scenario, the longer-term reputational risk will be lower as most companies and governments will fail to meet their own targets.
Market:
If investors’ expectations for businesses to demonstrate a shift towards low-carbon increase, this may influence decision-making and disadvantage companies unable to evidence sufficient progress and advantage those that are.
Should the expectations of hotel owners not align with IHG’s decarbonisation plans, potential challenges and conflicts may arise that inhibit IHG’s ability to influence and deliver on its commitments.
Policy and legal:
The speed at which governments align their policies and plans to their climate change commitments will impact the rate at which IHG can decarbonise.
Our work on decarbonisation supports our overarching corporate aim of ‘Care for our people, communities and planet’ – one of IHG’s four strategic priorities. Our decarbonisation strategy and Transition Plan can be found on page 57.
See details of the actions we are taking to make progress towards our commitment and to maximise the opportunities associated with decarbonising in our Responsible Business Report on pages 28 to 32.
The dependencies associated with our decarbonisation strategy are outlined on page 58 and the metrics and targets we have developed to measure this risk are detailed on page 59.
Additionally, our approach to stakeholder engagement supports the management of this potential risk or opportunity. This includes developing partnerships and working with governments, trade associations and industry peers to influence policy positively and to present opportunities for IHG hotel owners to decarbonise.
See more on our stakeholder engagement relating to climate change on pages 13 to 15 of our 2023 Responsible Business Report.
See IHG’s business strategy on pages 18 to 35.
See page 58 for further details on the key external factors that influence IHG’s decarbonisation.
Changing consumer preferences towards sustainable travel
Increasing appetite to travel sustainably could have a direct positive or negative impact on IHG’s financial performance, depending on IHG’s response and ability to adapt to changing consumer preferences for sustainable travel.
Under 1.5°C, 2°C and 4°C scenarios, our analysis identified a potential financial impact in the short-term. This impact could be negative if IHG fails to adapt to a potential shift in customer demand favouring sustainable stays. Alternatively, IHG could capitalise on this trend and secure a substantial share of the growing market.
We continue to receive sustainability-related questions from corporate customers, particularly when they seek accommodation providers that can support them with their own ESG ambitions. To enhance our understanding of this risk, we monitor ESG-related questions from corporate customers submitting Requests For Proposals (RFPs). In 2023, we saw more than 70% of customer accounts include ESG questions in RFPs, including requests for environmental data about our hotels. We have also conducted an internal analysis and found that nearly all top strategic global customers’ accounts have their own carbon targets.
We support our hotels in reducing the impact of their operations and improving their sustainable credentials through the provision of training, tools, and resources, as well as cross-industry collaboration and partnerships that enable hotels to innovate.
Whether our guests are travelling for business or leisure, we see a real opportunity to help them have a more sustainable stay as part of the IHG guest experience. In 2023, we continued to promote our Greener Stay initiative, as well as facilitating hotels’ access to leading third-party sustainability certification programmes and launching IHG’s Meeting for Good sustainable meetings programme, which helps hotels to respond to the growing demand for sustainable meeting offerings, post- pandemic.
The terminology used for our climate uncertainties has been adjusted to better align with IHG’s risk management framework: however, the scenario analysis remains unchanged. See last year’s Annual Report for previous wording.
In our 2022 Annual Report, we identified a decline in aviation as a priority transition risk, however, external forecasts show that aviation is set to increase in the future and leisure and business travel has returned to pre-Covid-19 levels. As a result, we have transferred this risk from one that we actively mitigate and report on, to monitoring as part of our sustainable travel risk.
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Increased frequency and severity of extreme weather events
Potential long term (13-30 years) impact under a 2°C and 4°C scenario, if unmitigated
Rising temperatures and in turn increasing likelihood and severity of acute or extreme weather events creates an inherent risk of disruption to IHG hotel operations. Such disruptions could impact revenues and the fee income received by IHG, potentially diminishing the appeal of the hotel industry to owners in specific locations.
IHG also faces potential reputational consequences if it fails to effectively respond to extreme events and provide appropriate support to owners and affected communities.
Under 2°C and 4°C temperature scenarios, our initial analysis found that acute physical risks could have a potential financial impact to IHG, if unmitigated. However, our tracking of the current impact of natural disasters on IHG’s revenue has shown this is not the case. To date, our asset-light franchise business model and geographical spread have helped to protect IHG’s revenue exposure.
However, we recognise the need to support our hotel teams, guests and the communities in which we operate, and in 2023, we conducted additional analysis on acute physical risks at the hotel level to assess our existing and pipeline hotels’ current and future exposure to 2030 and 2050.
Analysis found the most prominent risks, where we have a significant hotel presence, to be drought risk in countries such as the US, UAE and Saudi Arabia, and severe storms, tropical storms and cyclones in countries such as the US, China, Thailand, Singapore and Malaysia. Countries with the overall highest exposure to acute risks included China, the Caribbean nations, the Philippines and Oman. Acute risks are shown to increase over time, with significant increases in heatwave duration and drought length by 2050 across our existing and pipeline hotel locations.
Our focus has been on the identification and mapping of our acute physical risks, understanding and monitoring the impact on hotels, and assessing whether this is significant for IHG at the Group level. We are refining our understanding of this risk by continuing to develop our financial modelling. The analysis conducted in 2023, focusing on the physical risk at both existing and pipeline hotel, will help us identify the hotels most exposed. We will take into account their climate adaptive capacity and support hotels in developing mitigation strategies where needed.
We will also use our analysis to further integrate physical climate risks into our business decision-making processes and will explore where IHG mitigation and adaptation strategies might be needed.
At present, we provide support to our hotels and surrounding communities following natural disasters through our humanitarian aid partners, as well as through access to IHG colleague assistance funds and natural disaster guides.
See page 26 of our 2023 Responsible Business Report for the disaster response support we provide to hotels and our partners.
Significant changes in long-term weather patterns
Impact to be determined
As temperatures rise, chronic physical risks are expected to intensify. Responding to these risks may lead to heightened operating costs for hotel owners, alterations in customer travel patterns and impacts on hotel resource availability due to population migration and supply chain disruption. These may impact IHG’s financial performance and ability to grow in certain markets.
In 2023, we conducted analysis with third-party experts to identify geographical locations with high chronic physical risk. This analysis found that IHG’s hotel locations are more exposed to long-term persistent chronic climate risks than to short-term acute shocks, and has therefore informed our decision to transition chronic physical risks from an uncertainty that we monitor to one that we report on and begin to actively manage.
The existing risks found to be most prominent are heat stress in countries such as Thailand, Vietnam, Indonesia, UAE, China and India and water stress in the US, China, Australia, Mexico, India and Saudi Arabia. Extreme temperature, heatwave duration and heavy rainfall are also expected to rise significantly under 4°C scenario (RCP 8.5) to 2030 and 2050.
IHG will conduct scenario analysis to consider the potential impact of the chronic risks identified to IHG’s financial prospects and performance and seek to update business decision-making processes to consider physical climate risks, where needed.
We will establish which hotels are most exposed, with consideration to the local infrastructure and individual hotels’ capacity to adapt, as well as understanding how hotels are currently being affected by changing weather and what support we can provide moving forward.
See pages 37 and 38 of our 2023 Responsible Business Report for more detail on our Journey to Tomorrow water commitments and performance monitoring.
In our 2022 Annual Report, we identified a decline in aviation as a priority transition risk, however, external forecasts show that aviation is set to increase in the future and leisure and business travel has returned strongly to pre-Covid-19 levels. As a result, we have transferred this risk from one that we actively mitigate and report on, to monitoring as part of our sustainable travel risk.
We are targeting a 46% absolute reduction in our GHG emissions by 2030 from a 2019 base year (Scope 1 and 2 emissions and Scope 3 from fuel and energy-related activities and franchised hotels energy). The SBTi has validated this target, confirming its alignment with climate science and the Paris Agreement. This validation ensures that the target is designed to prevent the worst impacts of climate change.
Our decarbonisation strategy has a strong governance structure to support our progress towards our ambitions. Regional Steering Committees now help to account for geographical differences and are responsible for developing and executing regional decarbonisation plans which target actions that are most impactful within each
region, alongside resource requirements. Refer to page 53 for our climate governance structure.
See pages 28 to 32 of our 2023 Responsible Business Report for more details on the decarbonisation actions we are taking to deliver our transition plan.
IHG values the Transition Plan Taskforce’s (TPT) guidance on best practice reporting, and actively participated in the consultation period as members of the TPT Sandbox coalition. While awaiting additional sectoral guidance and updates to the regulatory framework, we will work towards alignment with the TPT framework.
We will also look at how we might align our future biodiversity and natural capital work with the Taskforce for Nature Related Financial Disclosures (TNFD) to enhance
transparency around our nature-related risks, opportunities and mitigation strategies.
See pages 39 and 40 of our 2023 Responsible Business Plan for more information on how we are helping to preserve nature.
Our SBT: To reduce absolute Scope 1, 2 and Scope 3 GHG emissions from FERA and franchised estate energy 46% by 2030 from a 2019 base year.”
How we plan to drive towards our 2030 SBT
To make progress towards our decarbonisation target while continuing to grow our business, we are acting across three principal levers: decarbonising our existing hotels; supporting our hotels to access renewable energy; and developing new-build hotels that operate at very low/ zero carbon.
estimates, incorporating our long-range plan for system size growth to 2030.
Our plan does not include the use of carbon offsets. Instead, we are focused on the absolute reduction of emissions, aligned with SBTi guidance. Our carbon footprint is reported as one of IHG’s KPIs (see page 63). Our transition plan (below) outlines our actions across each of our decarbonisation levers over the short and medium term.
Our transition plan SHORT-TERM MID-TERM 2019 2030 Primary decarbonisation levers PLAN ACTION Energy efficiency in • Energy and carbon • Rolling out ECMs across all existing estate hotels, focused on those • Continue to increase the existing estate modelling to map measures with a ROI of less than 5 years, supported by brand standards hotel adoption of ECMs. decarbonisation and reflected in corporate remuneration targets. • Partner with pathways. • Continued focus on energy reduction via the hotel energy metric. organisations that can • Integration of • Investing in tools and training, such as the HERO tool and Green Engage, incentivise hotel owners business growth to support our owners with decarbonisation initiatives. to adopt ECMs with plans and external longer payback periods. dependencies into • Expand the number of carbon pathways. new-build hotels in our Target new-build • Analysis of return • Embedding ECMs into our new-build hotels, supported by brand estate that operate at hotels to operate at on investment and standards and reflected in corporate remuneration targets. very low/zero carbon. very low/zero carbon impact of energy • Developing a programme to accelerate the number of new-build hotels • Scale access and emissions by 2030 efficiency that operate at very low/zero carbon adoption of renewable measures, energy as markets incorporating deregulate. regional variations in markets. • Advocate for policy frameworks that • Understanding encourage and support Renewable energy availability of • Transitioning to renewable energy through mechanisms such as green hotel owners to adopt purchases and renewable energy tariffs, community solar and on-site renewable generation, where efficiency measures, on-site generation at scale. commercially viable. move away from fossil • Identifying financial mechanisms to support widespread adoption fuel combustion and of on-site and off-site renewables. access renewable energy. CROSS-CUTTING CONSIDERATIONS Policy frameworks Access to fossil-free energy Further government tax relief Ability of our third-party-owned or financial incentives are hotels to move away from fossil needed to encourage and fuel usage is dependent on support hotel owners to drive both grid decarbonisation and efficiency measures. access to cost-effective renewable energy. Our hotels and Governments Trade bodies owners Engaging with Engaging on Developing tools, governments climate policy training, metrics to advocate through our and incentives for support for memberships that help hotels hotel owners and trade to meet energy to decarbonise. associations. targets and increase customer and regulatory expectations. Peers Using our influence in industry associations to align on standards on sector decarbonisation and highlight common challenges. Behavioural change Decarbonisation is heavily reliant on a sustained change in mindset and behaviour in day-to-day operations by hotel owners, teams and guests. Partnerships Partnering with NGOs to support the wider economy transition and with innovators to help reduce our impact. a Supply chain emissions are not included in our 2030 SBT, as they were not deemed material for inclusion under IHG’s science-based target scope, as per the SBTi criteria. Nevertheless, we engage with our supply chain to support our Journey to Tomorrow commitments and the wider economy transition: see pages 41 to 43 of our 2023 Responsible Business Report and page 46 of the same report for more details on our methodology and scope definitions.
Transition plan dependencies
Given IHG has a predominantly asset-light business model, with the majority of hotels owned by third parties, we’re working closely with our owners and teams across our entire estate in relation to our climate targets.
Unlike company-owned properties, franchised and managed hotels have independent ownership, including decisions related to infrastructure, utilities and carbon
reduction programmes. While we can provide guidelines and support, the decentralised nature of the franchise system requires a collaborative approach, incentivisation and effective communication to drive sustainability initiatives across the entire network.
There are a number of additional external factors that impact the rate at which IHG hotel owners can decarbonise. Some of these key external dependencies are
outlined below, and the impacts of these dependencies are considered in how we progress towards our SBT.
We recognise that our role in collaborating with governments, peers and trade bodies will be crucial to supporting owners and the industry in decarbonising successfully.
See further details of how we engage with stakeholders on pages 13 to 15 of our 2023 Responsible Business Report.
Response
The combination of high capital investment costs and longer payback periods for many ECMs is a barrier to reducing hotel energy consumption. Further government financial incentives (for example, tax relief) would support IHG hotel owners to prioritise the investment needed to improve the efficiency of their hotels and therefore drive accelerated decarbonisation across hotels operating under IHG brands.
See pages 13 to 15 of our 2023 Responsible Business Report for our stakeholder engagement and pages 28 to 32 for our carbon and energy reduction progress.
Ability of our third-party owned hotels to move away from fossil fuel use is dependent on several factors
IHG predominantly franchises and manages hotels in more than 100 countries around the world, including many where electricity grids are heavily dependent on fossil fuels. In 2023, managed and franchised hotels consumed over 8 million MWh of electricity, which equates to 76% of our total reported GHG emissions. We anticipate this electricity percentage to grow as hotel owners look to electrify their hotels to reduce their reliance on fossil fuels. In order for these actions to translate into meaningfully lower carbon emissions, there are several inter-related dependencies:
Electricity grids decarbonising in line with the Paris Agreement
We are reliant on governments implementing policies and plans that decarbonise electricity grids in line with a 1.5°C trajectory. Government inaction in this area would significantly impact IHG’s ability to meet its targets.
Owners’ ability to access scalable, cost-effective renewable energy
A crucial element of our transition plan is to support our franchised and managed hotels (which bear the costs of energy) to access renewable energy at scale. While IHG can influence renewable energy adoption, for example, by negotiating renewable energy tariffs or setting up contracts with approved suppliers for our community solar programme, we have a limited ability to enforce adoption. Large-scale solutions such as virtual Power Purchase Agreements (vPPAs) present unknown long-term financial exposure for IHG due to market price uncertainty, while potential changes to GHG accounting of renewable energy creates further barriers to adoption.
Additionally, the geographic spread of our hotel portfolio means that by 2030, over half of our emissions will be from regulated energy markets such as China, Saudi Arabia and the UAE. IHG is therefore dependent on those markets deregulating and the availability of solutions to enable cost-effective renewable energy to be procured at scale.
The business case for switching from gas to electricity needs to become more financially compelling for hotel owners
The price disparity between electricity and gas (in Western and Middle Eastern markets) presents a significant challenge to transitioning energy use to renewable sources. Rebalancing of electricity and gas prices would improve the rate of decarbonisation that could be achieved by hotel electrification.
See page 31 of our 2023 Responsible Business Report for progress on sourcing renewable energy.
Meeting our SBT requires new operational behaviours and mindset shifts to adapt to low-energy products and services. Guests’ expectations will need to evolve to align with more sustainable practices: for example, electrification will require a move away from speciality cooking techniques associated with fossil-fuel-based cooking, such as gas or charcoal – an industry-wide consideration. In addition, operational efficiencies can significantly reduce energy consumption at a hotel level; however, in an environment of high employee turnover across the hospitality industry, ongoing training and industry-wide initiatives are required to embed and sustain new practices.
Risk management
Identification, assessment, management and integration of climate-related risks
At IHG, we assess the connections between climate-related risks and opportunities and other key principal risks to ensure climate change is embedded in our risk management processes and addressed through our business strategy. We consider climate change to be a major uncertainty affecting our industry, reflecting this as a principal risk and indicating that it may affect other core areas of our business, including guest and owner preference for our brands. Our business model means that we share threats and opportunities with our owners, including our dependency on their capacity to invest, uphold our brand standards and achieve our commitments.
The Audit Committee provides oversight of the effectiveness of IHG’s risk management and internal control processes, including those relating to climate. To enable our risks to inform business decisions effectively, our risk reviews are conducted by the Board, Executive Committee and management teams to align with the business decision-making cycle. Our Risk and Assurance team conducts regular meetings with IHG leaders and teams responsible for assessing and managing risks. These conversations consider a range of uncertainties, such as the effect of climate change on hospitality, and the steps being taken to reduce IHG’s exposure, which may be relevant to the delivery of teams’ objectives and IHG’s success.
Enhancing awareness and improving understanding of IHG’s principal risks across the business, particularly around the complexities of climate change, helps ensure the consideration of risk factors within decision-making. IHG’s Corporate Responsibility team has developed climate training and tools for our corporate and hotel colleagues, and conducts regular workshops with key business functions to engage them on our decarbonisation and our Journey to Tomorrow programme.
Refer to pages 42 to 49 for more information on our approach to risk governance, management and IHG’s principal risks.
See pages 55 to 56 for information on our most significant climate-related risks and opportunities.
See page 32 of our 2023 Responsible Business Report for information on climate training, tools and resources.
Metrics and targets
To help us manage our climate-related risks and opportunities, we are developing metrics and targets in line with TCFD recommended disclosures. Where metrics and targets are still in progress or we do not consider the category to be relevant to IHG, we have provided details below.
GHG emissions and progress against SBT
Our GHG emissions are measured by our performance against our SBT commitment to reduce Scope 1 and 2 emissions and Scope 3 emissions from our franchised estate energy and FERA by 46% by 2030, from a 2019 base year. Our target is approved by the SBTi and our methodology to calculate our GHG emissions follows the GHG Protocol Corporate Accounting and Reporting Standard methodology. The Scope 3 emissions included within our SBT are material to IHG in accordance with the SBTi criteria and include Category 14
– Franchises and Category 3 – FERA.
Other Scope 3 categories are not included in our 2030 SBT, as they were not deemed material for inclusion under IHG’s Science-based target scope, as per the SBTi criteria.
We use our carbon footprint as a metric to track progress against our decarbonisation strategy and we report this within the KPI section on page 63. We also track our year-on-year absolute GHG emissions against our 2019 baseline.
A breakdown of our GHG emissions, intensity metrics and methodology can be found on pages 238 to 240 in our Streamlined Energy and Carbon Reporting (SECR).
See pages 46 to 49 of our 2023 Responsible Business Report pages for further details of our GHG methodology and data.
Remuneration
To support our decarbonisation strategy and transition opportunities, we have embedded ESG metrics into executive remuneration under the Directors’ Remuneration Policy. The 2023/25 LTIP cycle includes targets relating to the integration of ECMs into brand standards across new-build and existing hotels and the adoption of specific ECMs by owned, leased, managed lease and managed hotels. We track these measures during the cycle and will report on achievement in our Directors’ Remuneration Report at the end of the LTIP cycle. New measures will also be included in future LTIP cycles.
For more details of our Directors’ Remuneration Policy see ihgplc.com/investors/corporate-governance/directors-remuneration-policy.
See pages 116 to 140 for more on our Director’s Remuneration Report and 2024/26 LTIP cycle.
Capital deployment
Given the asset-light nature of our business model, we do not consider capital deployment to be a significant lever for managing our climate-related risks and opportunities, or for implementing our transition plan. We may incur operational costs associated with initiatives, such as new software systems, and any capital that is required is included within our typical capital expenditure levels of up to $350m gross per annum. We do not monitor capital expenditure by third-party owners of our franchised hotels.
Internal carbon pricing
Given that a significant portion of our emissions stems from our franchised estate, where our control is limited, we have determined that a conventional internal carbon price would not be the most impactful decarbonisation mechanism. Consequently, our efforts are directed toward more suitable mechanisms, as outlined in our transition plan on page 57.
External carbon price
We analysed the IHG Group and individual hotel-level exposure to carbon pricing legislation by applying a projected carbon price to our GHG emissions under a 1.5°C temperature scenario. At the IHG Group level, analysis found that we are largely insulated by our revenue-based fee structure, which mitigates a substantial proportion of costs being passed through to the Group from our hotels. However, we acknowledge that exposure could increase the risk of hotels becoming less profitable or less desirable as an asset class in future. By supporting our hotels in decarbonising, we aim to reduce this risk.
Transition risk and opportunities
We track the year-on-year performance of our GHG emissions and other environmental indicators, including energy, renewables and water and waste data, to evaluate progress in mitigating transition risks and optimising opportunities. We use energy reduction metrics and targets, as well as our remuneration target, to drive the uptake of ECMs across our estate.
We will explore further potential metrics that may be relevant for IHG to monitor and manage our climate-related opportunities and will disclose these if and when appropriate.
See our environmental performance data on pages 47 to 51 of our 2023 Responsible Business Report.
See pages 28 to 32 of our 2023 Responsible Business Report for more details on how IHG captures climate-related opportunities.
Physical risks
In 2023, we analysed the exposure of IHG’s existing and pipeline estate hotel locations to acute and chronic physical risks. We plan a deeper examination of this data set, conducting further analysis to understand the potential impacts on our hotels. Additionally, we aim to identify and establish metrics for consistently monitoring the most significant risks. The findings will be disclosed in future reporting.
See risk table on page 56 for details of the physical risks IHG is most exposed to.
Key performance indicators (KPIs)
Measures included are those considered most relevant in assessing the performance of the business and relate to our growth agenda and commitment to our key stakeholders including owners, guests, employees, shareholders and the communities in which we work. KPIs should be read in conjunction with the other sections of the Strategic Report, and where applicable, references to specific relevant topics are noted against each KPI.
Net rooms supply
Net total number of rooms in the IHG System.
Increasing our rooms supply provides significant advantages of scale, including increasing the value of our loyalty programme. This measure is a key indicator of achievement of our growth agenda (see page 18).
2023 status
Gross system growth of 5.3%, with net system size growth of 3.8%, as removals rate returned to historical average of 1.5%. Total rooms supply 946,203 at 31 December 2023.
Signings of 79,220 rooms (556 hotels) represented a 1.4% decline on the prior year which included 18,467 rooms (48 hotels) under the Iberostar Beachfront Resorts brand. Total pipeline of 296,954 rooms increased by 5.5% compared to 2022, with more than 40% under construction.
• Further growth of the Holiday Inn Brand Family with 18,274 rooms opened and 30,062 rooms signed, representing nearly 40% of our rooms signings.
• Expansion of our Luxury & Lifestyle portfolio with 9,033 rooms opened and a further 18,319 rooms signed.
• 5,098 rooms opened for Iberostar Beachfront Resorts with a further 1,424 rooms signed.
• Continued growth of our recently launched brands with:
– voco growing to 62 hotels open and a further 74 properties in the pipeline across 38 countries.
– 16 Atwell Suites signed, taking the pipeline to 41 properties.
– Vignette Collection growing to 29 hotels secured since its launch in 2021.
– avid hotels adding eight openings and 23 signings taking the estate to 67 hotels open with a further 141 in the pipeline.
– The launch of Garner, our new midscale conversion brand, with seven properties signed and the first two hotels open.
2024 priorities
• Continue to focus on delivering strong net system size growth, with well-invested brands in the largest markets and segments.
• Further scale of avid hotels, Atwell Suites and Garner.
• Continue to expand voco and Vignette Collection globally.
• Grow the footprint of our Luxury & Lifestyle brands, including branded residences.
• Continue to explore further opportunities for growth through other commercial agreements.
Signings
Gross total number of rooms added to the IHG pipeline.
Continued signings secure the future growth of our system and continued efficiencies of scale. Signings indicate our ability to deliver sustained growth (see page 18).
Use of Non-GAAP measures: In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional financial measures (described as Non-GAAP) are presented that are used internally by management as key measures to assess performance. Non-GAAP measures are either not defined under IFRS or are adjusted IFRS figures. Further explanation in relation to these measures can be found on pages 84 to 88, and reconciliations to IFRS figures, where they have been adjusted, are on pages 226 to 231.
Global RevPAR growth
Revenue per available room: rooms revenue divided by the number of room nights that are available.
RevPAR growth indicates the increased value guests ascribe to our brands in the markets in which we operate and is a key measure widely used in our industry (see page 8). Definition of this key performance measure can be found on page 84.
• Strong trading in 2023 resulted in RevPAR improving year-on-year across all regions with levels exceeding pre-pandemic peaks in all quarters of the year. This was driven by continued strength in leisure and the further return of corporate and group bookings.
• Throughout 2023 we have remained committed to supporting our owners to optimise returns as we:
– Increased IHG One Rewards member enrolments and direct bookings following the investments made in our loyalty programme in the prior year, enabling our owners to benefit from strong member engagement.
– Further enhanced revenue management systems to quickly identify and act on revenue opportunities using business intelligence and data.
– Improved rate negotiations on behalf of our owners using IHG’s centralised RFP processes, with more than 3,000 hotels now using the service.
– Continued to focus on quality, design and innovation to meet evolving needs of guests and drive guest satisfaction while optimising for owner returns.
– Provided owners with end-to-end support to shorten the time taken for renovations and openings with our Hotel Purchasing Services, and achieved up to 30% savings across various goods and services categories.
– Reduced owner costs through collective purchasing with our Group Purchasing Organization agreements across more than 100,000 items.
– Utilised data-driven, targeted campaigns and offers to appeal to our largest, fastest-growing and highest-value segments.
• Enterprise contribution improved to 79% in 2023, with increased adoption and performance of the IHG mobile app since its redesign in 2022. Online conversion rate continued to improve from investments in improving the online guest experience. GDS also increased as corporate demand continued to recover.
• Increased IHG One Rewards member enrolments year-on-year following the transformation of the loyalty programme in 2022. Reward Nights exceeded 2019 levels driving returns for owners, particularly through dynamic pricing.
• Re-launched US co-brand credit cards driving an increase in new accounts by over 60% and double digit percentage spend growth year-on-year, further driving owner returns and customer satisfaction.
• Continue to use data-driven insights, including mobile and AI, to enhance and personalise the guest experience, and to build on revenue-enhancing tools that drive returns for our owners.
• Leverage our GRS capabilities to generate stay enhancements through the cross-sell of extras through for guest stays, maximising revenue generation to owners by leveraging the unique attributes of their inventory.
• Continue to develop our digital-first approach, leveraging cloud-based technology to help owners and hotel colleagues better understand and drive the business.
• Further expand and strengthen our IHG Hotels & Resorts masterbrand to better promote our portfolio of brands.
• Continue to scale and invest in IHG One Rewards to support the growth and engagement of loyalty members.
• Increase contribution from IHG One Rewards members by driving direct booking through our mobile and web channels.
• Further rollout of new cloud-based Revenue Management System (RMS), enabling data and forecasting insights to owners.
• Commence work on the next-generation Property Management System (PMS) offering owners a single platform across properties to enable efficient enhancements.
Growth in underlying fee revenuesa,b
Group revenue from reportable segments excluding revenue from insurance activities, revenue from owned, leased and managed lease hotels, significant liquidated damages and current year acquisitions, stated at constant currency.
Underlying fee revenue growth demonstrates the continued attractiveness to owners and guests of IHG’s franchised and managed business (see page 11).
Total gross revenue from hotels in IHG’s System
Total rooms revenue from franchised hotels and total hotel revenue from managed, exclusive partner and owned, leased and managed lease hotels. Other than for owned, leased and managed lease hotels, it is not revenue wholly attributable to IHG, as it is mainly derived from hotels owned by third parties.
The growth in gross revenue from IHG’s System illustrates the value of our overall System to our owners (see page 11). Definition of this key performance measure can be found on page 84.
Enterprise contribution to revenue
The percentage of room revenue booked through IHG managed channels and sources: direct via our websites, apps and call centres; through our interfaces with Global Distribution Systems (GDS) and agreements with Online Travel Agencies (OTAs); other distribution partners directly connected to our reservation system; and Global Sales Office business or IHG One Reward members that book directly at a hotel.
Enterprise contribution is one indicator of IHG value-add and the success of our technology platforms and our marketing, sales and loyalty distribution channels (see page 26).
Re-presented to reflect the adoption of IFRS 17 ‘Insurance Contracts’. The 2019 and 2020 figures have not been restated and therefore the 2019, 2020 and 2021 growth figures are excluded from the comparison.
Key performance indicators (KPIs) continued
Guest Love
IHG’s guest satisfaction measurement indicator.
Guest satisfaction is fundamental to our continued success and is a key measure to monitor our ability to deliver an experience that meets and exceeds guests’ expectations (see page 22 for details).
• Guest satisfaction of 80.3% improved compared to 2022 reflecting increases in quality and consistency across the guest experience.
• Externally measured Guest Satisfaction Index (GSI) achieved a score over 100, outperforming our competitors, as we focus on guest experience improvements.
• Continued plans to ensure a consistent high-quality experience for each of our brands, including enhancements in food & beverage, hotel condition and service.
• Evolved our mobile app and digital booking to help enhance guest experience.
• Enhance the guest journey and strengthen brands while maintaining a focus on quality and consistency across all aspects, including loyalty recognition, digital experience, food & beverage, service, and property condition.
• Leverage tools such as training and data insights to further increase performance across our estate.
Fee margina,b
Operating profit as a percentage of revenue, excluding System Fund, reimbursement of costs, revenue and operating profit from owned, leased and managed lease hotels, significant liquidated damages, insurance activities and exceptional items.
Our fee margin progression indicates the profitability of our fee revenue growth and benefit of our asset-light business model (see page 10).
• Fee margin grew by 340bps to 59.3%, driven by continued strength in trading in EMEAA and Greater China.
• Maintain our cost and efficiency focus.
• Leverage technology applications and process enhancements to achieve operational efficiencies.
• Continue to reinvest in the business to drive growth and further expand margin over the long term.
Adjusted free cash flowa
Cash flow from operating activities excluding payments of contingent purchase consideration, less purchase of shares by employee share trusts, maintenance capital expenditure and lease payments.
Adjusted free cash flow provides funds to invest in the business, sustainably grow the dividend and return any surplus to shareholders (see page 12). It is a key component in measuring the ongoing viability of our business (see page 50).
• Adjusted free cash flow increased by $254m to $819m due to growth in operating profit from reportable segmentsa and an improvement in the System Fund and reimbursable result, partly offset by increased contract acquisition costs, higher tax payments and lower working capital cash inflow. Closing liquidity was $2,572m.
• Continue to deliver consistent, sustained growth in cash flow.
• Timely management of capital deployment in line with business priorities.
IHG® Academy
Number of people participating in one of our in person IHG Academy programmes and the number of registered users on the IHG Skills Academy platform.
Sustained participation indicates the strength of our progress in creating career building opportunities and engagement with the communities in which we operate (see page 12).
• Refreshed the wider IHG Academy offering to hotel and corporate functions.
• Increased internships and work experience placements across hotels and corporate functions, utilising both in-house experiences and virtual solutions.
• Expanded our IHG Skills Academy registrations by over 500%.
• Implemented a new IHG Skills Academy interface to improve user experience.
• Added additional language translations to IHG Skills Academy to increase global reach.
• Launch refreshed IHG Academy offering to hotel and corporate functions to activate within their local communities.
• Introduce updated tracking tool to hotels and upgrade IHG Academy global metrics dashboard.
• Raise awareness of all IHG Academy offerings to increase skills training opportunities and maximise IHG Academy participants.
2022 and 2021 fee margin re-presented to reflect the adoption of IFRS 17 ‘Insurance Contracts’ in 2023. The 2019 and 2020 figures have not been restated and are therefore excluded from the comparison.
Employee engagement survey scores
Colleague HeartBeat survey, completed by IHG employees or colleagues employed at owned, leased or managed leased and managed hotels (excluding our joint ventures).
We measure employee engagement to monitor risks relating to talent (see page 46) and to help us understand the issues that are relevant to our people as we build a diverse and inclusive culture (see page 29).
• The score of 87% improved on the prior year and was 10% higher than external benchmarks.
• Prioritised employee development and retention activities:
– Focused on launching the ‘squiggly career’ concept and an interactive critical experiences framework that helps employees explore the different career journeys available within IHG corporate.
– Evolved our leadership development programme content to include further support for people leaders on how to develop their teams through focused career conversations, performance check-ins and providing timely feedback.
– Launched a new corporate onboarding programme to help our new starters in four pilot locations learn the business and network with people across teams.
• Continuing to focus on employee wellbeing, including piloting a mental health first aider programme in the UK, highlighting and investing in our Employee Assistance Programme, and celebrating key calendar events such as World Mental Health Day.
• Delivered on diversity, equity and inclusion (DE&I) initiatives:
– Continuing to expand our Employee Resource Group (ERG) membership and presence globally.
––Celebrated key calendar events such as International Women’s Day, Pride and International Day of Persons with Disabilities.
– Launched new inclusive hiring practices to help increase our representation of diverse leaders across our senior leadership population.
• Launched Leading for Growth Executive Development Programme, designed specifically for those at VP level and above to help stimulate thinking around how we lead today along with exploring future development.
• Continue to foster an inclusive culture and further raise our representation of diverse leaders across our senior leadership.
• Increase support for employees to plan their development internally.
• Continue to develop our people leadership capability through learning, communications, events and toolkits.
• Scale our corporate onboarding programme to all corporate locations.
• Continued focus on our L&L capability and talent.
• Integrate more of the L&L hotel estate into our HR platforms.
Absolute carbon footprint
Total GHG emissions (Tonnes of CO2e), calculated using the market-based methodology to take account of renewable energy. For more information on our carbon footprint methodology see page 239.
Our global target is to reduce absolute Scope 1, 2 and Scope 3 (FERA and franchised hotels energy) GHG emissions 46% by 2030 from a 2019 baseline year.
This target has been validated by the SBTi as being consistent with climate science to limit global temperature rise to 1.5°C above pre-industrial levels. To ensure progress against this target, we work with our hotels to drive energy efficiency and carbon reductions across our estate.
• While there was an increase year-on-year in 2023 due to the recovery in occupancy and growth in the size of the estate, we continued to drive energy efficiency with a 3.8% reduction in carbon emissions per occupied room from 2019 and a 1.9% absolute reduction against the baseline.
• Continued rollout of ECMs across existing estate hotels and new-builds, focused on those measures with a ROI of less than 5 years, supported by brand standards and reflected in corporate remuneration targets.
• Ongoing access to training, tools and resources to help hotels maximise their energy efficiency, including resources in the US for owners to identify tax and other financial incentives to help fund energy efficiency investments.
• Expanded US owner access to renewable electricity through our community solar programme.
• Continue to rollout our decarbonisation roadmap focusing on energy-efficiency measures in the existing estate, transitioning to renewable energy and developing new-build hotels operating with very low/zero carbon emissions. See pages 56 to 58 for more information on our transition plan.
• Developing a programme to accelerate the number of new-build hotels that are energy-efficient, have no fossil fuels combusted on-site and are fully powered by renewable energy where available.
Strategic Report Chief Financial Officer’s review rading strengthened through Tthe year, with RevPAR exceeding pre-pandemic highs in each quarter. This, combined with growth in our well-invested brand portfolio and efficient cost base, drove higher profitability and fee margin. Our proven cash-generative business model resulted in $1.0bn returned to shareholders in 2023, while continuing to invest for future growth. Trading performance Following the investments made in our loyalty and technology platforms, guest enrolments and bookings increased through the year, and our owners were able to leverage our enterprise to capture demand as guests returned, yielding rate and occupancy gains. Travel demand remained healthy, supported by strong leisure and continued recovery in business and groups, with RevPAR exceeding pre-pandemic highs in the year. The degree of RevPAR growth varied across the regions. Performance in the Americas and EMEAA continued to exceed pre-pandemic levels through 2023. Greater China rebounded significantly following the lifting of Covid-19 related restrictions in late 2022, with the region also exceeding 2019 levels by the third quarter. System growth During the year, gross system size increased by 5.3%, demonstrating the strength of our brand portfolio. Conversions represented 37% of openings and signings combined, as our brand portfolio including our newly launched midscale conversion brand, Garner, enables us to more readily capture these opportunities that contribute to delivering our system growth. Our continued focus on the quality of our estate resulted in a removals rate of 1.5% year-on-year, in line with our historical underlying average. Net system size increased by 3.8%. Operating profit Operating profit was $1,066m, an increase of $438m from the prior year. Operating profit from reportable segmentsa improved to $1,019m compared to $828m in 2022. The strong growth in revenue and our cost management resulted in a 3.4%pts improvement in fee margina to 59.3%. Our growth in operating profit was achieved alongside continued investment to support future growth, including in the expansion of our brand portfolio and investments in our enterprise platform. Cash generation and liquidity Demonstrating the highly cash-generative nature of our business, net cash from operating activities increased by $247m to $893m, and adjusted free cash flowa improved by $254m to $819m, compared to the prior year. During 2023, we returned $1.0bn to shareholders through a combination of ordinary dividends and share buybacks. Robust drove RevPAR trading and to exceed profitability pre highs -pandemic in 2023, demonstrating the strength of our business model.” Our net debt:adjusted EBITDA ratio at the end of the year finished at 2.1x, beneath the 2.5-3.0x range we aim to maintain. At the year-end, the Group’s total liquidity was $2,572m. The Board has proposed a final dividend of 104.0¢, +10% vs 2022, taking the dividend for the year to 152.3¢. The Board has also approved a further share buyback programme to return an additional $800m to shareholders. Our uses of cash remain unchanged: ensuring the business is appropriately invested in to optimise growth; funding a sustainably growing dividend; and then returning excess funds to shareholders. Future growth and 2024 priorities Looking to 2024, we are confident that travel demand will continue to trend ahead of pre-pandemic levels. We remain focused on our multi-year commitment to invest in our brand portfolio, loyalty programme and technology platforms. Our support to owners has continued through uplifts in revenue generation, targeted procurement solutions and the management of inflationary pressures through build and operational efficiencies. We are confident in our asset-light, fee-based business model, combined with our track record of fee margin growth through focused cost management, which is proven to be highly cash-generative, enabling us to fund further investments and additional shareholder returns. Michael Glover Chief Financial Officer a Use of Non-GAAP measures: In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional financial measures (described as Non-GAAP) are presented that are used internally by management as key measures to assess performance. Non-GAAP measures are either not defined under IFRS or are adjusted IFRS figures. Further explanation in relation to these measures can be found on pages 84 to 88, and reconciliations to IFRS figures, where they have been adjusted, are on pages 226 to 231. 64 IHG | Annual Report and Form 20-F 2023
Performance
Group
Group Income Statement summary
$m
% change
Fee business
Owned, leased and managed lease
Insurance activities
Adjusted interest expensec
System Fund interest
Foreign exchange gains
Adjusted taxc
Tax attributable to System Fund
Tax on foreign exchange gains
Tax on fair value gains on contingent purchase consideration
Tax on exceptional items and exceptional tax
Re-presented for the adoption of IFRS 17 ‘Insurance Contracts’ and to combine System Fund and reimbursables (see ‘New accounting standards and other presentational changes’ on page 172.
Americas and EMEAA include revenue and operating profit before exceptional items from both fee business and owned, leased and managed lease hotels. Greater China includes revenue and operating profit before exceptional items from fee business.
Definitions for non-GAAP measures can be found in the ‘Key performance measures and non-GAAP measures’ section on pages 84 to 88 along with reconciliations of these measures to the most directly comparable line items within the Group Financial Statements which can be found on pages 226 to 231.
Percentage change considered not meaningful, such as where a positive balance in the latest period is comparable to a negative or zero balance in the prior period.
Adjusted earnings as used with adjusted earnings per share, a non-GAAP measure.
Re-presented for a change to the definition of adjusted tax (see page 231).
Performance continued
Group continued
Highlights for the year ended
31 December 2023
Trading improved significantly in the first quarter, as travel in the comparative period of 2022 was impacted by the Omicron variant of Covid-19. From April, the comparatives became subsequently tougher as government-mandated travel restrictions eased in the prior year. Leisure demand in the Americas and EMEAA saw continued strength, supported by improving corporate and group bookings. Greater China rebounded significantly, with RevPAR exceeding pre-pandemic levels in the third quarter. By the fourth quarter, average daily rate remained above pre-pandemic highs and occupancy had recovered to within 1%pt of 2019 levels.
Revenue
Group comparable RevPAR improved year-on-year by 33.0% in the first quarter, 17.1% in the second quarter, 10.5% in the third quarter, 7.6% in the fourth quarter and 16.1% in the full year. When compared to the pre-pandemic levels of 2019, Group comparable RevPAR increased 6.8% in the first quarter, 9.9% in the second quarter, 12.8% in the third quarter, 12.7% in the fourth quarter and 10.9% in the full year. Overall, average daily rate exceeded 2019 levels by 12.7% and occupancy was 1.1%pts lower.
Our other key driver of revenue, net system size, increased by 3.8% year-on-year to 946,203 rooms.
Total revenue increased by $732m (18.8%) to $4,624m, including a $411m increase in System Fund and reimbursable revenue. Revenue from reportable segmentsa increased by $321m (17.4%) to $2,164m, driven by the improved trading conditions. Underlying revenuea increased by $347m to $2,164m, with underlying fee revenuea increasing by $249m. Owned, leased and managed lease revenue increased by $77m.
Operating profit and margin
Operating profit improved by $438m from $628m to $1,066m, including a $123m increase in operating exceptional items, from a $95m charge in 2022 to a $28m income in 2023, and a $124m increase in the reported System Fund and reimbursable result, from a $105m loss in 2022 to a $19m profit in 2023.
Operating profit from reportable segmentsa increased by $191m (23.1%) to $1,019m, with fee business operating profit increasing by $187m (23.2%) to $992m, due to the improvement in trading which drove a $65m increase in incentive management fees to $168m. Owned, leased and managed lease operating profit improved from $19m to $29m. Underlying operating profita increased by $201m (24.6%) to $1,019m.
Fee margina increased by 3.4%pts over the prior year to 59.3% benefitting from the improvement in trading.
The impact of the movement in average USD exchange rates for 2022 compared to 2023 netted to a $2m impact on operating profit from reportable segmentsa when calculated as restating 2022 figures at 2023 exchange rates, but negatively impacted operating profit from reportable segmentsa by $13m when applying 2022 rates to 2023 figures.
If the average exchange rate during January 2024 had existed throughout 2023, the 2023 operating profit from reportable segmentsa would have been $4m lower.
System Fund and reimbursable result
The Group operates a System Fund to collect and administer cash assessments from hotel owners for specified purposes of use including marketing, reservations and the Group’s loyalty programme, IHG One Rewards. The System Fund also benefits from proceeds from the sale of loyalty points under third-party co-branding arrangements. The Fund is not managed to generate a surplus or deficit for IHG over the longer term, but is managed for the benefit of hotels in the IHG system with the objective of driving revenues for the hotels in the system.
The growth in the IHG One Rewards programme means that, although assessments are received from hotels up front when a member earns points, more revenue is deferred each year than is recognised in the System Fund. This can lead to accounting losses in the System Fund each year as the deferred revenue balance grows which do not necessarily reflect the Fund’s cash position and the Group’s capacity to invest.
Reimbursable revenue represents reimbursements of expenses incurred on behalf of managed and franchised properties and relates, predominantly, to payroll costs at managed properties where we are the employer. As IHG record reimbursable expenses based upon costs incurred with no added mark-up, this revenue and related expenses have no impact on either operating profit or net profit for the year.
In the year to 31 December 2023, System Fund and reimbursable revenues increased $411m (20.1%) to $2,460m, driven by the continued strength in travel demand, strong performance of the IHG One Rewards programme since the relaunch in the first half of last year.
The reported System Fund and reimbursable result improved to a $19m profit from a $105m loss, primarily due to the continued strength in travel demand on revenues, partially offset by increased investments in media as well as revenue-driving channels and activities.
Operating exceptional items
Exceptional items are identified by virtue of their size, nature or incidence and are excluded from the calculation of adjusted earnings per ordinary sharea as well as other Non-GAAP measures (see Use of Non-GAAP measures, pages 226 to 231) in order to allow a better understanding of the underlying trading performance and trends of the Group and its reportable segments. Examples of exceptional items can include, but are not restricted to, gains and losses on the disposal of assets, impairment charges and reversals, the costs of individually significant legal cases or commercial disputes and reorganisation costs.
Operating exceptional items totalled $28m income, driven by the following items:
share of profits from the InterContinental New York Barclay associate of $18m, due to an increase in the fair value of the hotel, which resulted in the reversal of an $18m liability recognised in 2022; and
other operating income of $10m relating to amounts receivable from the Group’s insurer under its business interruption policy for certain owned, leased and managed lease hotels due to Covid-19.
Further information on exceptional items can be found in note 6 to the Group Financial Statements.
Definitions for Non-GAAP revenue and operating profit measures can be found on pages 84 to 88. Reconciliations of these measures to the most directly comparable line items within the Group Financial Statements can be found on pages 226 to 231.
Net financial expenses
Net financial expenses decreased to $52m from $96m, including $35m in foreign exchange gains. Adjusted interesta, as reconciled on page 231, and which excludes exceptional finance expenses and foreign exchange gains/losses and adds back interest attributable to the System Fund, increased by $9m to an expense of $131m. The increase in adjusted interestb was primarily driven by an increase in interest attributable to the System Fund of $28m due to increased base rates, offset by an increase in financial income of $17m.
Financial expenses include $78m
(2022: $82m) of total interest costs on public bonds, which are fixed rate debt. Interest expense on lease liabilities was $29m (2022: $29m).
Fair value gains and losses on contingent purchase consideration
Contingent purchase consideration arose on the acquisition of Regent. The net loss of $4m (2022: $8m gain) is principally due to an unfavourable movement in observable US corporate bond rates. The total contingent purchase consideration liability at 31 December 2023 is $69m (31 December 2022: $65m).
Taxation
The adjusted taxa rate for 2023 was 28% (2022: 27%). Taxation within exceptional items totalled a charge of $7m (2022: credit of $26m) and relates to the tax impacts of the operating exceptional items. Tax paid in 2023 totalled $243m (2022: $211m).
IHG pursues an approach to tax that is consistent with its business strategy and its overall business conduct principles. The approach seeks to ensure full compliance with all tax filing, payment and reporting obligations on the basis of communicative and transparent relationships with tax authorities. The IHG Audit Committee reviews IHG’s approach to tax annually, including consideration of the Group’s current tax profile. Further information on tax can be found in note 8 to the Group Financial Statements.
Earnings per ordinary share
The Group’s basic earnings per ordinary share is 443.8¢ (2022: 207.2¢). Adjusted earnings per ordinary sharea increased by 93.4¢ to 375.7¢.
Dividends and returns
The Board is proposing a final dividend of 104.0¢ in respect of 2023, which is growth of 10% on 2022. With the interim dividend of 48.3¢ paid in October 2023, the total dividend for the year would therefore be 152.3¢, representing an increase of 10%. The ex-dividend date is Thursday 4 April 2024 and the Record Date is Friday 5 April 2024. The corresponding dividend amount in Pence Sterling per ordinary share will be announced on Thursday 25 April 2024, calculated based on the average of the market exchange rates for the three working days commencing 22 April 2024. Subject to shareholder approval at the AGM on Friday 3 May 2024, the dividend will be paid on Tuesday 14 May 2024.
The dividend payments in 2023 have returned close to $250m to IHG’s shareholders. An additional $750m of surplus capital was returned to shareholders through a share buyback programme that concluded in December 2023. This repurchased 10,643,334 shares at an average price of £55.88 per share and reduced the total number of voting rights in the Company by 6.1%.
The Board has approved a further share buyback programme to return an additional $800m to shareholders in 2024.
Share price and market capitalisation
The IHG share price closed at £70.90 on Friday 29 December 2023, up 49.5% from £47.44 on 30 December 2022. The market capitalisation of the Group at the year-end was £11.7bn.
For discussion of 2022 results, and the changes compared to 2021, refer to the 2022 Annual Report and Form 20-F. The impact of IFRS 17 adoption on those years was not material (see new accounting standards and other presentational changes on page 172)
Accounting principles
The Group results are prepared under International Financial Reporting Standards (IFRS) as described on page 161 of the Group Financial Statements. The application of IFRS requires management to make judgements, estimates and assumptions, and those considered critical to the preparation of the Group results are set out on page 162.
The Group discloses certain financial information both including and excluding exceptional items. For comparability of the periods presented, some of the performance indicators in this performance review are calculated after eliminating these exceptional items. An analysis of exceptional items is included in note 6.
Adjusted EBITDAa reconciliation
2023
2022
2023 vs 2022
$m change
2021
2022 vs 2021
Group Cash Flow summary
Definitions for non-GAAP measures can be found in the ‘Key performance measures and non-GAAP measures’ section on pages 84 to 88.
Cash flow from operations
For the year ended 31 December 2023, cash flow from operations was $1,219m, an increase of $258m on the previous year, primarily reflecting the increase in operating profit. Cash flow from operations is the principal source of cash used to fund interest and tax payments, capital expenditure, ordinary dividend payments and additional returns of capital of the Group.
Adjusted free cash flowa was an inflow of $819m, an increase of $254m on the prior year. Adjusted EBITDAa increased by $190m and the System Fund and reimbursable result improved by $124m due to stronger trading. Net interest paid decreased by $21m primarily due to an increase in interest received of $14m. These were partly offset by a $22m lower working capital and other adjustments cash inflow, an increase in contract acquisition (key money) costs net of repayments of $37m and $32m higher tax payments. Working capital and other adjustments includes $123m of cash inflow related to deferred revenue, driven primarily by the loyalty programme. Exceptional cash costs in the year of $29m includes payments relating to commercial litigation and disputes; in the prior year, the cost of ceasing operations in Russia was also included.
Net and gross capital expenditure
Net capital expenditurea was $157m (2022: $59m) and gross capital expenditurea was $253m (2022: $161m). Gross capital expenditurea comprised: $146m maintenance capex and key money; $61m gross recyclable investments; and $46m System Fund capital investments. Net capital expenditurea includes the offset from $8m proceeds from other financial assets, $7m key money repayments and $81m System Fund depreciation and amortisation.
Net debta
Net debta increased by $421m from $1,851m at 31 December 2022 to $2,272m at 31 December 2023. There were $1,035m of payments related to ordinary dividends and the share buyback programmes during the year. The change in net debta includes adverse net foreign exchange impacts of $105m driven by translation of the Group’s sterling bond debt and $26m of other non-cash adjustments.
Balance sheet
Net liabilities
The Group had net liabilities of $1,946m at 31 December 2023 ($1,608m at 31 December 2022). In accordance with accounting standards, the Group’s internally developed brands are not recorded on the Group’s balance sheet, and its asset-light business model means that most properties from which income is derived are not owned. This does not have an impact on the ability of the Group to raise external funding or the dividend capacity of the Group.
Goodwill and other intangible assets
Goodwill and other intangible assets of $1,099m decreased by $45m compared to the prior year driven by amortisation of software assets. Goodwill and brands have a total net book value of $775m as at 31 December 2023 ($774m as at 31 December 2022). Brands relate to the acquisitions of Kimpton, Regent and Six Senses. They are each considered to have an indefinite life given their strong brand awareness and reputation, and management’s commitment to continued investment in their growth. Goodwill and brands are allocated to cash generating units (CGUs), and they are tested annually for impairment, with no impairment recognised in 2023 given the recoverable amounts of the CGUs exceeded their carrying value. The movement in the year is due to exchange rates.
The remaining balance of intangible assets primarily relates to software ($297m).
Working capital
Trade receivables increased by $87m, from $493m at 31 December 2022 to $580m, primarily due to improved trading in the last quarter of 2023 compared to the last quarter of 2022. Current trade and other payables increased by $14m, primarily due to $13m deferred consideration moving from non-current payables in 2023. Deferred revenue increased by $124m, driven by an increase in the future redeemable points balance related to the loyalty programme.
Cash and borrowings
Net debta of $2,272m (2022: $1,851m) is analysed by currency as follows:
Including the impact of derivative financial instruments.
Cash and cash equivalents includes $30m (2022: $24m) that is not available for use by the Group due to local exchange controls, $14m (2022: $11m) which is restricted for use on capital expenditure under hotel lease agreements and $12m (2022: $12m) subject to contractual and regulatory restrictions.
Borrowings included bank overdrafts of $44m (2022: $55m), which were matched by an equivalent amount of cash and cash equivalents under the Group’s cash pooling arrangements. Under these arrangements, each pool contains a number of bank accounts with the same financial institution, and the Group pays interest on net overdraft balances within each pool. Overseas subsidiaries are typically in a cash-positive position and the matching overdrafts are held by the Group’s central treasury company in the UK.
Definitions for Non-GAAP measures can be found on pages 84 to 88. Reconciliations of these measures to the most directly comparable line items within the Group Financial Statements can be found on pages 226 to 231.
Sources of liquidity
As at 31 December 2023, the Group had total liquidity of $2,572m (31 December 2022: $2,224m), comprising $1,350m of undrawn bank facilities and $1,222m of cash and cash equivalents (net of overdrafts and restricted cash). The change in total liquidity from December 2022 of $348m is primarily due to a new bond issuance of $657m, offset by other net cash outflows of $318m.
In November 2023, the Group issued a €600m 4.375% bond repayable in November 2029. Currency swaps were transacted at the same time as the bond was issued in order to swap the proceeds and interest flows to US Dollars. The currency swaps fix the bond debt at $657m, with interest payable semi-annually at 5.97%.
The Group currently has $3,122m of sterling and euro bonds outstanding. The bonds mature in October 2024 (€500m), August 2025 (£300m), August 2026 (£350m), May 2027 (€500m), October 2028 (£400m) and November 2029 (€600m). There are currency swaps in place on the euro bonds, fixing the October 2024 bond at £454m, the May 2027 bond at £436m and the November 2029 bond at $657m. The Group currently has senior unsecured long-term credit ratings of BBB from S&P and Baa2 from Moody’s.
The Group is further financed by a $1.35bn syndicated bank revolving credit facility (RCF). A one-year extension option was exercised during the year and the facility now matures in 2028. There is a one-year extension option remaining at the lenders discretion. There are two financial covenants: interest cover and leverage ratio. Covenants are tested at half year and full year on a trailing 12-month basis. The interest cover covenant requires a ratio of Covenant EBITDA to Covenant interest payable above 3.5:1 and the leverage ratio requires Covenant net debt to Covenant EBITDA below 4.0:1. At 31 December 2023 the leverage ratio was 2.14 and the interest cover ratio was 12.34. See note 24 to the Financial Statements for further information. The RCF was undrawn at 31 December 2023.
The Group is in compliance with all of the applicable financial covenants in its loan documents, none of which are expected to present a material restriction on funding in the near future.
It is management’s opinion that the available facilities are sufficient for the Group’s present liquidity requirements.
Off-balance sheet arrangements
At 31 December 2023, the Group had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Group’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Contingent liabilities
Contingent liabilities include guarantees over loans made to facilitate third-party ownership of hotels of up to $50m and outstanding letters of credit of $68m. The Group may also be exposed to additional liabilities resulting from litigation and security incidents. See note 30 to the Group Financial Statements for further details.
Future cash requirements from contractual obligations
The Group’s future cash flows arising from contractual commitments relating to long-term debt obligations (including interest payable), derivatives, lease liabilities and other financial liabilities are analysed in note 24 to the Group Financial Statements. Other cash requirements relate to future pension scheme contributions (see note 27 to the Group Financial Statements) and capital commitments (see note 30 to the Group Financial Statements).
The Group also has future commitments for key money payments which are contingent upon future events and may reverse.
Disaggregation of total gross revenueb in IHG’s System
Total gross revenue provides a measure of the overall strength of the Group’s brands. It comprises total rooms revenue from franchised hotels and total hotel revenue from managed hotels and owned, leased and managed lease hotels and excludes revenue from the System Fund and reimbursement of costs. Other than owned, leased and managed lease hotels, total gross revenue is not revenue attributable to IHG as it is derived from hotels owned by third parties. The definition of this key performance measure can be found on page 84.
Total gross revenue in IHG’s system increased by 22.6% (23.4% increase at constant currency) to $31.6bn as a result of improved trading conditions and growth in the number of hotels in our system.
As shown in the Cash Flow summary on page 68.
Definitions for the key performance measures can be found in the ‘Use of key performance measures and non-GAAP measures’ section, which can be found on pages 84 to 88. Reconciliations of these measures to the most directly comparable line items within the Group Financial Statements can be found on pages 226 to 231.
Year-on-year percentage movement calculated from source figures.
Includes Holiday Inn Club Vacations.
Includes exclusive partner hotels.
Group hotel and room count
During the year, 47,919 rooms (275 hotels) opened, compared to 49,443 rooms (269 hotels) in the prior year which included 12,402 rooms (33 hotels) under the Iberostar Beachfront Resorts brand.
Openings included 18,274 rooms (134 hotels) in the Holiday Inn Brand Family, 5,098 rooms (16 hotels) under the Iberostar Beachfront Resorts brand and the first 158 rooms (two hotels) under Garner, our newly launched conversion brand.
In 2023, 13,343 rooms (76 hotels) left the IHG system, compared to 18,143 rooms (96 hotels) in 2022 which included 6,457 rooms (28 hotels) as part of ceasing operations in Russia. The removals rate of 1.5% was in line with our historical underlying average.
Net system size increased by 3.8% year-on-year to 946,203 rooms.
a Includes eight open hotels that will be re-branded to voco and five open hotels that will be re-branded to Vignette Collection.
b Includes exclusive partner hotels.
Total number of hotels
6,363
Total number of rooms
946,203
Group pipeline
At the end of 2023, the global pipeline totalled 296,954 rooms (2,016 hotels), an increase of 15,486 rooms (157 hotels), as signings outpaced openings and terminations. The IHG pipeline represents hotels where a contract has been signed and the appropriate fees paid.
During the year, 79,220 rooms (556 hotels) were signed, compared to 80,338 rooms (467 hotels) in the prior year which included 18,467 rooms (48 hotels) under the Iberostar Beachfront Resorts brand. Signings in 2023 included 30,062 rooms (220 hotels) for the Holiday Inn Brand Family, 808 rooms (13 hotels) under the Six Senses brand and 490 rooms (seven hotels) as part of our newly launched brand, Garner.
a Includes exclusive partner hotels.
Total number of hotels in the pipeline
2,016
Total number of rooms in the pipeline
296,954
Americas momentu Our growth m across brand por ourtfolio in us 2023 for fur pther repares acceleration.” Jolyon Bulley Chief Executive Officer, Americas Americas revenue 2023 ($1,105m) Americas number of rooms (519,594) Comparable RevPAR movement on previous year (12 months ended 31 December 2023) Fee business InterContinental 12.0% Kimpton 8.9% Hotel Indigo 4.9% Crowne Plaza 11.2% EVEN Hotels 8.5% Holiday Inn Express 6.4% Holiday Inn 7.2% avid hotels 8.6% Staybridge Suites 6.1% Candlewood Suites 2.4% All brands 7.0% Owned, leased and managed lease All brands 16.8% e continued our growth Wmomentum across our brand portfolio in 2023 by delivering industry-leading guest experiences, driving competitive owner returns and deepening owner relationships. Building on our midscale expertise, we launched Garner, our new conversion brand, and strengthened our Luxury & Lifestyle proposition, preparing us for further acceleration in years to come. Industry performance in 2023 Industry RevPAR in the Americas increased by 14.5% year-on-year (increased by 31.7% against 2019) driven by both average daily rate and occupancy which increased by 12.8% and 0.9%pts, respectively. Canada and Latin America drove RevPAR growth across the region, followed by the US upper upscale and upscale chain scales. US lodging industry growth continued to normalise in 2023, with RevPAR increasing by 4.9% (increased 13.2% against 2019) and average daily rate increasing by 4.3%. Occupancy increased by 0.4%pts on the prior year, as strong recovery in urban locations and group activity was partially offset by increased outbound travel. Room supply increased by 0.3%, while conversion activity accelerated. RevPAR in the US upper midscale chain scale, where the Holiday Inn and Holiday Inn Express brands operate, increased by 4.2%. Industry RevPAR increased by 18.3% in Canada driven by both occupancy and average daily rate increases. RevPAR in Latin America increased by 38.0% and in Mexico RevPAR increased by 1.4%. IHG’s regional performance in 2023 IHG’s comparable RevPAR in the Americas increased by 7.0% compared to 2022 (increased by 13.0% against 2019), driven by a 1.5%pts increase in occupancy and a 4.6% increase in average daily rate. The region is predominantly represented by the US, where comparable RevPAR increased by 5.4% compared to 2022 (increased by 11.1% against 2019), and where we are most weighted towards our upper midscale brands, Holiday Inn and Holiday Inn Express. US RevPAR for the Holiday Inn brand increased by 4.3%, while the Holiday Inn Express brand increased by 5.3%. Comparable RevPAR in Canada increased by 18.7%, while Mexico increased by 15.5%. Kimpton Hotel Monaco, Washington DC, US Performance IHG | Annual Report and Form 20-F 2023 73
Americas continued
Americas results
Review of the year ended
With 519,594 rooms (4,414 hotels), the Americas represented 55% of the Group’s room count. The key profit-generating market is the US, and the Group is also represented in Latin America, Canada, Mexico and the Caribbean. 93% of rooms in the region are operated under the franchised business model, primarily under our brands in the upper midscale segment (including the Holiday Inn Brand Family). In the upscale market segment, Crowne Plaza is predominantly franchised, whereas, in the luxury market segment, InterContinental branded hotels are operated under both franchise and management agreements, while Kimpton is mainly managed. 17 of the Group’s 19 hotel brands are represented in the Americas.
Trading in the Americas was ahead of pre-pandemic levels throughout 2023 and travel demand remained strong. Double-digit RevPAR growth in the first quarter reflected the prior year comparative period being impacted by localised restrictions; from April onwards, the comparatives strengthened, as government-mandated restrictions eased in 2022.
Continued strength in leisure demand resulted in US RevPAR growth ahead of pre-pandemic levels. This was further supported by the return of corporate and group activity through the year.
In Q4, average daily rate increased by 3.1% and occupancy reduced by 1.0%pts year-on-year. Across our US franchised estate, which is weighted to domestic demand in upper midscale hotels, RevPAR was broadly flat in the fourth quarter. The US managed estate, weighted to upper upscale and luxury hotels in urban locations, saw RevPAR increase by 1.8%.
Americas comparable RevPAR grew 18% in the first quarter, 6% in the second quarter, 4% in the third quarter, 1% in the fourth quarter and 7% in the full year, all compared to 2022. Compared to 2019, RevPAR increased 11% in the first quarter, 12% in the second quarter, 14% in the third quarter, 14% in the fourth quarter and 13% in the full year.
Revenue from the reportable segmenta increased by $100m (10.0%) to $1,105m. Operating profit increased by $127m to $842m, driven by the increase in revenue, together with a $73m favourable change in exceptional income. Operating profit from the reportable segmenta increased by $54m (7.1%) to $815m.
Revenue and operating profit from the reportable segmenta are further analysed by fee business and owned, leased and managed lease hotels.
Fee business revenuea increased by $78m (8.9%) to $957m. Fee business operating profita increased by $46m (6.2%) to $787m, driven by improved trading. Fee margina decreased to 82.2%, compared to 84.3% in 2022, reflecting cost investment in growth initiatives, including Garner. There were $21m of incentive management fees earned (2022: $18m).
Owned, leased and managed lease revenue increased by $22m to $148m, with comparable RevPAR up 16.8% vs 2022 leading to an increase in owned, leased and managed leased operating profit of $28m compared to $20m in the prior year.
For discussion of 2022 results, and the changes compared to 2021, refer to the 2022 Annual Report and Form 20-F.
ihgplc.com/investors under Annual Report
a Definitions for Non-GAAP revenue and operating profit measures can be found on pages 84 to 88. Reconciliations of these measures to the most directly comparable line items within the Group Financial Statements can be found on pages 226 to 231.
b Percentage change considered not meaningful, such as where a positive balance in the latest period is comparable to a negative or zero balance in the prior period.
Americas hotel and room count
Rooms
Includes four open hotels that will be re-branded to voco.
4,414
519,594
Gross system size growth was 2.0% year-on-year. We opened 10,405 rooms (101 hotels) during the year, compared to 20,568 rooms (125 hotels) in 2022 which included 9,027 rooms (23 hotels) under the Iberostar Beachfront Resorts brand. Over half of the region’s openings were in our Holiday Inn Brand Family. Openings also included 11 Candlewood Suites, four voco hotels and the first two properties of our newly launched conversion brand, Garner, in the US.
There were 6,307 rooms (43 hotels) removed in the year. The removal rate of 1.2%, up from 0.8% in the prior year, was closer to the historical underlying average of 1.5%. Net system size growth was 0.8% year-on-year.
Americas pipeline
1,040
109,164
At 31 December 2023, the pipeline totalled 109,164 rooms (1,040 hotels), representing 21% of the region’s system size.
Signings of 28,297 rooms (271 hotels) in 2023, compared to 32,464 rooms (231 hotels) in 2022 which included 11,418 rooms (28 hotels) under the Iberostar Beachfront Resorts brand. The majority of signings were in our midscale and upper midscale brands including the Holiday Inn Brand Family (11,299 rooms, 103 hotels), avid hotels (1,594 rooms, 23 hotels) and Atwell Suites (1,648 rooms, 16 hotels). Other notable signings included eight Kimpton hotels and seven Garner properties.
9,047 rooms (84 hotels) were removed from the pipeline in 2023, compared to 8,180 rooms (78 hotels) in the prior year.
EMEAA a We strong delive ored verall 2023 in long by -ter inm vesting growth priority m acarkets ross our .” Kenneth Macpherson Chief Executive Officer, EMEAA EMEAA revenue 2023 ($677m) EMEAA number of rooms (247,267) Comparable RevPAR movement on previous year (12 months ended 31 December 2023) Fee business Six Senses 17.7% InterContinental 26.0% Kimpton 47.1% Hotel Indigo 24.5% voco 10.5% Crowne Plaza 23.7% Holiday Inn Express 21.9% Holiday Inn 23.4% Staybridge Suites 12.5% All brands 23.5% Owned, leased and managed lease All brands 31.8% e delivered a strong overall W2023 by investing in long-term growth across our priority markets. This included opening iconic properties under Regent and Vignette Collection within Luxury & Lifestyle, and creating elevated guest experiences with greater consistency across our brands. We are in a stronger position than before to accelerate growth. Industry performance in 2023 Industry RevPAR in EMEAA increased by 26.0% year-on-year (increased by 26.4% against 2019), driven by an improvement in both occupancy and average daily rate by 6.0%pts and 14.7%, respectively. In Europe, RevPAR increased by 19.3% (increased 28.4% against 2019) driven by both occupancy and average daily rate. In the UK, industry RevPAR increased by 14.5% compared to 2022 (increased 25.9% against 2019), where UK room demand increased by 5.7% and supply increased by 0.4%. In Germany, RevPAR increased by 18.5% (increased 3.0% against 2019). France saw RevPAR increase by 18.1%, driven by a 14.2% increase in average daily rate. RevPAR increased by 37.4% (increased 55.2% against 2019) in the Middle East, driven by average daily rate. Elsewhere in EMEAA, RevPAR in Australia increased 10.8% (increased 21.4% against 2019), Japan increased by 66.0% (increased 10.4% against 2019) and Thailand increased by 58.2% (increased 10.4% against 2019), driven by both occupancy and average daily rate. IHG’s regional performance in 2023 EMEAA comparable RevPAR increased by 23.7% compared to 2022 (increased 15.4% against 2019), driven by a 9.8% increase in average daily rate coupled with a 7.9%pts increase in occupancy. In the UK, the region’s largest market, RevPAR increased by 13.7% compared to 2022 (increased by 16.9% against 2019). Germany saw a RevPAR increase of 27.0% and France increased by 23.3%. RevPAR in the Middle East increased by 11.7% (increased 13.2% against 2019), with the fourth quarter down 1% as the comparative period benefitted from FIFA World Cup. India increased by 27.3% (increased 37.0% against 2019). Elsewhere in EMEAA, the variances in performance largely reflected the timing of travel restrictions being lifted in the prior year. RevPAR increased in Australia by 18.5% (increased 14.2% against 2019), increased by 57.3% (decreased 5.6% against 2019) in Japan and increased by 67.9% (increased 14.7% against 2019) in Thailand. Crowne Plaza, Ankara, Turkey Performance IHG | Annual Report and Form 20-F 2023 77
EMEAA continued
EMEAA results
Comprising 247,267 rooms (1,237 hotels) at the end of 2023, EMEAA represented 26% of the Group’s room count. Revenues are primarily generated from hotels in the UK and gateway cities in continental Europe, the Middle East and Asia. The largest proportion of rooms in the UK and continental Europe are operated under the franchised business model, primarily under our upper midscale brands (Holiday Inn and Holiday Inn Express). In the upscale market segment, Crowne Plaza is evenly proportioned between the franchised and managed operating models, whereas in the luxury market segment, the majority of InterContinental branded hotels are operated under management agreements. The majority of hotels in markets outside Europe are operated under the managed business model.
Through the year, the dispersion of RevPAR performance across the region narrowed as the easing of travel restrictions impacted trading in all markets. RevPAR rebounded significantly in the first half of the year when compared to 2022; with the pace of recovery in the second half reflecting performance in the comparable prior period. Leisure travel remained the strongest category, with corporate bookings and group activity continuing to improve as the year went on.
The UK, which saw one of the earlier easing of restrictions in the prior year, saw RevPAR up 13.7%. Continental Europe increased by 25.5%, Australia increased by 18.5% and South East Asia & Korea increased by 41.5%. Elsewhere, RevPAR in the Middle East increased 11.7%, as Q4 in the prior year benefitted from the FIFA World Cup. RevPAR in Saudi Arabia increased by 21.2% and India increased by 27.3%.
EMEAA comparable RevPAR increased 64% in the first quarter, 27% in the second quarter, 16% in the third quarter, 7% in the fourth quarter and 24% in the full year, all compared to 2022. Compared to 2019, RevPAR increased 10% in the first quarter, 15% in the second quarter, 17% in the third quarter, 19% in the fourth quarter and 15% in the full year.
Revenue from the reportable segmenta increased by $125m (22.6%) to $677m. Operating profit increased by $113m to $216m, driven by improved trading, together with the non-recurrence of the $49m of operating exceptional charges in the prior year. Operating profit from the reportable segmenta increased by $63m to $215m profit. Incentive management fees earned improved to $101m (2022: $69m).
Fee business revenuea increased by $70m (24.6%) to $354m. Fee business operating profita increased to $214m from $153m in the prior year, driven by the improvement in trading. Fee margina recovered to 60.5% in 2023, compared to 52.7% in 2022.
Owned, leased and managed lease revenue increased by $55m to $323m, with comparable RevPAR up 32% vs 2022. The easing of trading challenges on this largely urban-centred portfolio resulted in an owned, leased and managed lease operating profit of $1m, up from a $1m loss in 2022.
EMEAA hotel and room count
Change over
Includes three open hotels that will be re-branded to voco and five open hotels that will be re-branded to Vignette Collection.
EMEAA pipeline
1,237
247,267
Gross system size growth was 9.2% year-on-year. During the year, 21,174 rooms (87 hotels) opened, an increase of 4,963 rooms (8 hotels) compared to 2022. Openings included 4,700 rooms (26 hotels) in our Holiday Inn Brand Family and 5,098 rooms (16 hotels) under our Iberostar Beachfront Resorts brand. Other notable openings included four Vignette Collection hotels representing new country entries for the brand, eight InterContinental hotel openings and four Six Senses properties.
3,571 rooms (19 hotels) were removed in the year, two thirds less than in the prior year (10,747 rooms, 47 hotels) which included 6.5k (28 hotels) related to the ceasing of operations in Russia. Net system size increased 7.7% year-on-year.
469
82,226
At 31 December 2023, the EMEAA pipeline totalled 82,226 rooms (469 hotels), representing 33% of the region’s system size.
Signings of 24,787 rooms (151 hotels) in 2023, compared to 25,847 rooms (128 hotels) in the prior year which included 7,049 rooms (20 hotels) under the Iberostar Beachfront Resort brand. Over a quarter of signings were in the luxury segment including 2,500 rooms (12 hotels) under Vignette Collection and 531 rooms (six hotels) under the Six Senses brand.
(12 months ended 31 December 2023) s the Chinese economy recovered, Awe welcomed guests back with evolved brand offerings and supported owners with enhanced enterprise delivery, resulting in performance across our hotels exceeding pre-pandemic levels. Alongside the debut of Vignette Collection and the Regent on the Bund in Shanghai, we celebrated the opening of our 700th hotel, underlining our continued rapid growth in Greater China. Industry performance in 2023 The industry saw strong recovery across Greater China in 2023 following the lifting of localised lockdowns at the end of the prior year. Industry RevPAR in Greater China increased by 61.1% compared to 2022 (decreased by 0.8% against 2019). Supply increased by 3.3% and demand increased 40.2%. RevPAR across all tiers increased compared to 2022. Tier 1 cities saw a 68.8% increase in RevPAR, as room demand increased by 44.4%. In Tier 2 cities, RevPAR increased 47.2%, driven by both occupancy and average daily rate, while in Tier 3 cities, RevPAR increased by 43.9%. In Tier 4 cities, RevPAR increased by 55.0%, driven by demand increasing by 39.3%. RevPAR in Hong Kong SAR increased by 70.3% driven by average daily rate which increased 34.2%. Macau SAR RevPAR increased 391.9%, with demand increasing 175.0% driven by inbound Mainland China travel. IHG’s regional performance in 2023 IHG’s comparable RevPAR in Greater China increased by 71.7% compared to 2022 (increased by 0.7% against 2019), driven by a 19.1%pts increase in occupancy and an 18.0% increase in average daily rate as trading conditions improved following the lifting of travel restrictions in December 2022. In Mainland China, RevPAR increased by 70.7%. Tier 1 cities increased by 96.6% as they benefitted from domestic leisure and the prior year comparables reflecting travel restrictions, comparedto 61.6% in Tier 2-4 cities. RevPAR in Hong Kong SAR increased by 93.8% while RevPAR in Macau SAR increased by 279.9%. Crowne Plaza Hotel & Suites Landmark Shenzhen, China
Greater China results
Comprising 179,342 rooms (712 hotels) at 31 December 2023, Greater China represented approximately 20% of the Group’s room count. The majority of rooms in Greater China operate under the managed business model, although the franchised segment continues to grow, representing approximately one-third of the region’s open rooms.
Following the lifting of localised travel restrictions in December 2022, the trading conditions in Greater China rebounded significantly through 2023. Monthly RevPAR growth against the prior year peaked in the March to May period, lapping the travel restrictions in place in the comparable prior period, with RevPAR peaking in April, up more than 170% year-on-year; by July and August, RevPAR was up 40% and 38% respectively as leisure demand was strong in the prior summer period; the fourth quarter saw RevPAR improve to 72% year-on-year, as more restrictions were re-introduced in the prior year comparative period.
For the year, Tier 1 cities saw RevPAR up 97% as they lapped travel restrictions in place in the comparable period, and benefitted from increased domestic travel.
Tier 2-4 cities saw RevPAR increase 62% reflecting the lesser impact from Covid-19 in 2022.
Compared to 2022, overall Greater China RevPAR increased 75% in the first quarter and 110% in the second quarter, as the comparable prior year trading was impacted by travel restrictions, before increasing 43% in the third quarter and 72% in the fourth quarter, with 72% in the full year. Compared to 2019, RevPAR declined 9% in the first quarter, declined 1% in the second quarter, increased 9% in the third quarter, before declining 1% in the fourth quarter, with the full year increasing 1%.
Revenue from the reportable segmenta in 2023 increased by $74m (85.1%) to $161m and operating profit increased by $73m (317.4%) to $96m. The improvement in trading at our managed hotels led to incentive management fees increasing from $16m in 2022 to $46m in 2023. Fee margina increased to 59.6%, compared to 26.4% in 2022.
Greater China continued
Greater China hotel and room count
Includes one open hotel that will be re-branded to voco.
Greater China pipeline
712
179,342
Gross system size growth was 9.8% year-on-year, with 16,340 rooms (87 hotels) added to our system in 2023, an increase from 12,664 rooms (65 hotels) in 2022. Openings were mainly in our Holiday Inn Brand family (7,552 rooms, 51 hotels), with a further four voco properties, three Vignette Collection hotels and our sixth Regent hotel in the region.
Removals included 3,465 rooms (14 hotels) in the year, representing a removal rate of 2.1%. Net system size growth was 7.7% year-on-year.
507
105,564
As at 31 December 2023, the pipeline totalled 105,564 rooms (507 hotels), representing 59% of the region’s system size.
Signings of 26,136 rooms (134 hotels) were ahead of last year by 4,109 rooms (26 hotels). Almost half of signings were in our Holiday Inn Brand family. Other notable signings included 17 Crowne Plaza hotels, 12 voco hotels and three Kimpton properties.
Central
Central results
Central revenue, which is mainly comprised of technology fee income and revenue from insurance activities, increased by $22m (11.1%) to $221m. Central revenue was primarily driven by the growth of IHG system size and the insurance programme.
The resulting $107m operating loss was a decrease of $1m year-on-year.
Regent Hotel, Shanghai on the Bund, China
Key performance measures and non-GAAP measures
Key performance measures and non-GAAP measures used by management
The Annual Report and Form 20-F presents certain financial measures when discussing the Group’s performance which are not measures of financial performance or liquidity under International Financial Reporting Standards (IFRS). In management’s view, these measures provide investors and other stakeholders with an enhanced understanding of IHG’s operating performance, profitability, financial strength and funding requirements. These measures do not have standardised meanings under IFRS, and companies do not necessarily calculate these in the same way. As these measures exclude certain items (for example, impairment and the costs of individually significant legal cases or commercial disputes), they may be materially different to the measures prescribed by IFRS and may result in a more favourable view of performance. Accordingly, they should be viewed as complementary to, and not as a substitute for, the measures prescribed by IFRS and as included in the Group Financial Statements (see pages 154 to 160).
See pages 116 to 140 for more information on Directors’ remuneration and pages 60 to 63 for more information on KPIs.
Global revenue per available room (RevPAR) growth
RevPAR, average daily rate and occupancy statistics are disclosed on pages 232 to 234.
RevPAR is the primary metric used by management to track hotel performance across regions and brands. RevPAR is also a commonly used performance measure in the hotel industry. RevPAR comprises IHG’s System (see Glossary, page 268) rooms revenue divided by the number of room nights available and can be derived from occupancy rate multiplied by the average daily rate (ADR). ADR is rooms revenue divided by the number of room nights sold.
References to RevPAR, occupancy and ADR are presented on a comparable basis, comprising groupings of hotels that have traded in all months in both the current and comparable year. The principal exclusions in deriving this measure are new hotels (including those acquired), hotels closed for major refurbishment and hotels sold in either of the comparable years.
RevPAR and ADR are quoted at a constant US$ conversion rate, in order to allow a better understanding of the comparable year-on-year trading performance excluding distortions created by fluctuations in currency movements.
Owned, leased and managed lease revenue as recorded in the Group Financial Statements is reconciled to total gross revenue on page 70.
Total gross revenue is revenue not wholly attributable to IHG; however, management believes this measure is meaningful to investors and other stakeholders as it provides a measure of System performance, giving an indication of the strength of IHG’s brands and the combined impact of IHG’s growth strategy and RevPAR performance.
Total gross revenue refers to revenue which IHG has a role in driving and from which IHG derives an income stream. IHG’s business model is described on pages 10 to 13. Total gross revenue comprises:
• Total rooms revenue from franchised hotels;
• Total hotel revenue from managed and exclusive partner hotels including food and beverage, meetings and other revenues, reflecting the value driven by IHG and the base upon which fees are typically earned; and
• Total hotel revenue from owned, leased and managed lease hotels.
Other than total hotel revenue from owned, leased and managed lease hotels, total gross revenue is not revenue attributable to IHG as these managed, franchised and exclusive partner hotels are owned by third parties.
Total gross revenue is used to describe this measure as it aligns with terms used in the Group’s management, franchise and exclusive partner agreements and, therefore, is well understood by owners and other stakeholders.
Measure
Commentary
Revenue and operating profit measures
The reconciliation of the most directly comparable line item within the Group Financial Statements (i.e. total revenue and operating profit, accordingly) to the non-IFRS revenue and operating profit measures is included on pages 226 to 231.
Revenue and operating profit from (1) fee business, (2) owned, leased and managed lease hotels, and (3) insurance activities are described as ‘revenue from reportable segments’ and ‘operating profit from reportable segments’, respectively, within note 2 to the Group Financial Statements. These measures are presented insofar as they relate to each of the Group’s regions and its Central functions.
Management believes revenue and operating profit from reportable segments are meaningful to investors and other stakeholders as they exclude the following elements and reflect how management monitors the business:
• System Fund and reimbursables – the System Fund is not managed to generate a surplus or deficit for IHG over the longer term, it is managed for the benefit of the hotels within the IHG system. As described within the Group’s accounting policies (page 164), the System Fund is operated to collect and administer cash assessments from hotel owners for specific purposes of use including marketing, the Guest Reservation System and hotel loyalty programme.
As described within the Group’s accounting policies (page 164), there is a cost equal to reimbursable revenues so there is no profit impact. Cost reimbursements are not applicable to all hotels, and growth in these revenues is not reflective of growth in the performance of the Group. As such, management does not include these revenues in their analysis of results.
• Exceptional items – these are identified by virtue of either their size, nature or incidence with consideration given to consistency of treatment with prior years and between gains and losses. Exceptional items include, but are not restricted to, gains and losses on the disposal of assets, impairment charges and reversals, the costs of individually significant legal cases or commercial disputes and reorganisation costs. As each item is different in nature and scope, there will be little continuity in the detailed composition and size of the reported amounts which affect performance in successive periods. Separate disclosure of these amounts facilitates the understanding of performance including and excluding such items. The Group’s accounting policy for exceptional items and further detail of those items presented as such are included in the Group Financial Statements (see pages 165 and 179 to 180).
• Underlying revenue;
• Underlying operating profit;
• Underlying fee revenue; and
• Fee margin.
Although management believes these measures are useful to investors and other stakeholders in assessing the Group’s ongoing financial performance and provide improved comparability between periods, there are limitations in their use as compared to measures of financial performance under IFRS. As such, they should not be considered in isolation or viewed as a substitute for IFRS measures. In addition, these measures may not necessarily be comparable to other similarly titled measures of other companies due to potential inconsistencies in the methods of calculation.
Management believes these are meaningful to investors and other stakeholders to better understand comparable year-on-year trading and enable assessment of the underlying trends in the Group’s financial performance.
Key performance measures and non-GAAP measures continued
Revenue and operating profit measures continued
Underlying fee revenue growth
Underlying fee revenue is used to calculate underlying fee revenue growth. Underlying fee revenue is calculated on the same basis as underlying revenue as described above but for the fee business only and to exclude revenue and operating profit from insurance activities, which are not a core part of the Group’s trading operations.
Management believes underlying fee revenue is meaningful to investors and other stakeholders as an indicator of IHG’s ability to grow the core fee-based business, aligned to IHG’s asset-light strategy.
Fee margin
Fee margin is presented at actual exchange rates and is a measure of the profit arising from fee revenue. Fee margin is calculated by dividing ‘fee operating profit’ by ‘fee revenue’. Fee revenue and fee operating profit are calculated from revenue from reportable segments and operating profit from reportable segments, as defined above, adjusted to exclude revenue and operating profit from the Group’s owned, leased and managed lease hotels as well as from insurance activities and significant liquidated damages.
Management believes fee margin is meaningful to investors and other stakeholders as an indicator of the sustainable long-term growth in the profitability of IHG’s core fee-based business, as the scale of IHG’s operations increases with growth in IHG’s system size.
Adjusted interest
Financial income and financial expenses as recorded in the Group Financial Statements is reconciled to adjusted interest on page 231.
Adjusted interest is presented before exceptional items and excludes foreign exchange gains/losses primarily related to the Group’s internal funding structure and the following items of interest which are recorded within the System Fund:
• Interest income is recorded in the System Fund on the outstanding cash balance relating to the IHG loyalty programme. These interest payments are recognised as interest expense for IHG.
• Other components of System Fund interest income and expense, including capitalised interest, lease interest expense and interest income on overdue receivables.
Given results related to the System Fund are excluded from adjusted measures used by management, these are excluded from adjusted interest and adjusted earnings per ordinary share (see below).
The exclusion of foreign exchange gains/losses provides greater comparability with covenant interest as calculated under the terms of the Group’s revolving credit facility.
Management believes adjusted interest is a meaningful measure for investors and other stakeholders as it provides an indication of the comparable year-on-year expense associated with financing the business including the interest on any balance held on behalf of the System Fund.
Adjusted tax
The tax expense and the tax rate as recorded in the Group Financial Statements are reconciled to adjusted tax and the adjusted tax rate on page 231.
Adjusted tax excludes the impact of foreign exchange gains/losses, exceptional items, System Fund and fair value gains/losses on contingent consideration.
Foreign exchange gains/losses vary year-on-year depending on the movement in exchange rates, and fair value gains/losses on contingent consideration and, as outlined above, exceptional items also vary year-on-year. These can impact the current year’s tax charge. The System Fund (including interest and tax) is not managed to a surplus or deficit for IHG over the longer term and is, in general, not subject to tax.
Management believes removing these from both profit and tax provides a better view of the Group’s underlying tax rate on ordinary operations and aids comparability year-on-year, thus providing a more meaningful understanding of the Group’s ongoing tax charge.
The adjusted tax definition has been amended from 2023 to align to the adjustments made to adjusted earnings per share and ensure consistency between measures. The measure has been re-presented for prior years to show consistent presentation.
Adjusted earnings per ordinary share
Profit available for equity holders is reconciled to adjusted earnings per ordinary share on page 231.
Adjusted earnings per ordinary share adjusts the profit available for equity holders used in the calculation of basic earnings per share to remove the System Fund and reimbursable result, interest attributable to the System Fund and foreign exchange gains/losses as excluded in adjusted interest (above), change in fair value of contingent purchase consideration, exceptional items, and the related tax impacts of such adjustments and exceptional tax.
Management believes that adjusted earnings per share is a meaningful measure for investors and other stakeholders as it provides a more comparable earnings per share measure aligned with how management monitors the business.
Net debt
Net debt is included in note 23 to the Group Financial Statements.
Net debt is used in the monitoring of the Group’s liquidity and capital structure and is used by management in the calculation of the key ratios attached to the Group’s bank covenants and with the objective of maintaining an investment grade credit rating. Net debt is used by investors and other stakeholders to evaluate the financial strength of the business.
Net debt comprises loans and other borrowings, lease liabilities, the principal amounts payable and receivable on maturity of derivatives swapping debt values, less cash and cash equivalents. A summary of the composition of net debt is included in note 23 to the Group Financial Statements.
Adjusted EBITDA
Cash from operations as recorded in the Group Financial Statements is reconciled to adjusted EBITDA on page 68.
One of the key measures used by the Group in monitoring its debt and capital structure is the net debt: adjusted EBITDA ratio, which is managed with the objective of maintaining an investment grade credit rating. The Group has a stated aim of targeting this ratio at 2.5-3.0x. Adjusted EBITDA is defined as cash flow from operations, excluding cash flows relating to exceptional items, cash flows arising from the System Fund and reimbursable result, other non-cash adjustments to operating profit or loss, working capital and other adjustments, and contract acquisition costs (key money).
Adjusted EBITDA is useful to investors as an approximation of operational cash flow generation and is also relevant to the Group’s banking covenants, which use Covenant EBITDA in calculating the leverage ratio. Details of covenant levels and performance against these are provided in note 24 to the Group Financial Statements.
Gross capital expenditure, net capital expenditure, adjusted free cash flow
The reconciliation of the Group’s statement of cash flows (i.e. net cash from investing activities, net cash from operating activities, accordingly) to the non-IFRS capital expenditure and cash flow measures is included on page 230.
Gross capital expenditure represents the consolidated capital expenditure of IHG inclusive of System Fund capital investments (see page 13 for a description of System Fund capital investments and recent examples).
Gross capital expenditure is defined as net cash from investing activities, adjusted to include contract acquisition costs (key money). In order to demonstrate the capital outflow of the Group, cash flows arising from any disposals or distributions from associates and joint ventures are excluded. The measure also excludes any material investments made in acquiring businesses, including any subsequent payments of deferred or contingent purchase consideration included within investing activities, which represent ongoing payments for acquisitions.
Gross capital expenditure is reported as either maintenance, recyclable or System Fund. This disaggregation provides useful information as it enables users to distinguish between:
• System Fund capital investments which are strategic investments to drive growth at hotel level;
• Recyclable investments (such as investments in associates and joint ventures and loans to facilitate third-party ownership of hotel assets), which are intended to be recoverable in the medium term and are to drive the growth of the Group’s brands and expansion in priority markets; and
• Maintenance capital expenditure (including contract acquisition costs), which represents a permanent cash outflow.
Management believes gross capital expenditure is a useful measure as it illustrates how the Group continues to invest in the business to drive growth. It also allows for comparison year-on-year.
Net capital expenditure provides an indicator of the capital intensity of IHG’s business model. Net capital expenditure is derived from net cash from investing activities, adjusted to include contract acquisition costs (net of repayments) and to exclude any material investments made in acquiring businesses, including any subsequent payments of deferred or contingent purchase consideration included within investing activities which are typically non-recurring in nature. Net capital expenditure includes the inflows arising from any disposal and loan repayment receipts, or distributions from associates and joint ventures.
In addition, System Fund depreciation and amortisation relating to property, plant and equipment and intangible assets, respectively, is added back, reducing the overall cash outflow. This reflects the way in which System Funded capital investments are recovered from the System Fund, over the life of the asset (see page 13).
Management believes net capital expenditure is a useful measure as it illustrates the net capital investment by IHG, after taking into account capital recycling through asset disposal and the funding of strategic investments by the System Fund. It provides investors and other stakeholders with visibility of the cash flows which are allocated to long-term investments to drive the Group’s strategy.
Gross capital expenditure, net capital expenditure, adjusted free cash flow continued
Adjusted free cash flow
Adjusted free cash flow is net cash from operating activities adjusted for: (1) the inclusion of the cash outflow arising from the purchase of shares by employee share trusts reflecting the requirement to satisfy incentive schemes which are linked to operating performance; (2) the inclusion of maintenance capital expenditure (excluding contract acquisition costs); (3) the inclusion of the principal element of lease payments; and (4) the exclusion of payments of deferred or contingent purchase consideration included within net cash from operating activities.
Management believes adjusted free cash flow is a useful measure for investors and other stakeholders as it represents the cash available to invest back into the business to drive future growth and pay the ordinary dividend, with any surplus being available for additional returns to shareholders.
Changes in definitions to the 2022 Annual Report and Accounts
The following definitions have been amended:
The performance review should be read in conjunction with the Non-GAAP reconciliations on pages 226 to 231 and the Glossary on pages 267 to 268.
Chair’s overview
The Board strives to enhance an environment of transparency and accountability, to ensure that reliable governance frameworks and processes are maintained, while encouraging an approach to decision-making that facilitates the Group’s strategic priorities in a constantly evolving geopolitical and regulatory environment.
Across the year, the Board maintained a high level of engagement and interaction with the Group’s stakeholders. Extensive shareholder consultation was undertaken by the Board, particularly in relation to the approach to remuneration and the Directors’ Remuneration Policy approved during the year.
The Board also enjoyed continued constructive engagement with owners and colleagues throughout the year. For example, I was pleased to spend time meeting with the CEO of the IHG Owners Association, which provided valuable insight into the perspectives of our owners on the Group’s strategic initiatives. I also enjoyed meeting and hearing directly from a number of colleagues as part of the Board’s Voice of the Employee engagement programme.
Focus areas and activities
The Board had another active year in 2023, and more information on its activities is given on pages 101 to 103.
The Board oversaw the evolution of the Group’s strategy and endorsed the refinement of the Group’s ambition to focus on accelerating growth, as well as the enhancements to the strategic pillars and the new growth behaviours.
The Board actively engaged with the Group’s growth agenda, supporting and approving the launch of the Garner brand.
The Board was further pleased to support the Group’s creation of value for shareholders by approving the $750m share buyback programme announced and completed during the year as well as the regular dividend payments.
Cybersecurity was again a significant area of focus for the Board. The Board discussed the broad nature of cyber risk with external specialists, including emerging risk areas, such as the rise of AI, and the approach to prioritising mitigating initiatives. The Board also monitored throughout the year the Group’s approach to cyber risk and the increased investment in security measures, as well as the culture of security awareness and the approach to training across the organisation.
Board composition
During the year, we also saw the successful execution of Board succession planning with changes at both the Executive and Non-Executive levels. At the Executive level, Elie Maalouf and Michael Glover succeeded Keith Barr and Paul Edgecliffe-Johnson as Chief Executive Officer and Chief Financial Officer respectively.
At the Non-Executive level, in the first half of the year, as previously announced, Graham Allan and Byron Grote transitioned to become Chair of the Responsible Business Committee and Chair of the Audit Committee respectively.
The execution of succession planning continued with Angie Risley joining the Board in September and succeeding Jo Harlow as Chair of the Remuneration Committee from 1 January 2024, following Jo’s retirement from the Board. We also announced the appointment of Ron Kalifa as Non-Executive Director with effect from 1 January 2024. Further information on Board appointments during the year can be found in the Nomination Committee Report on page 115.
I would again like to express my and the Board’s sincere gratitude to Keith, Paul and Jo for their contribution to IHG.
I am also proud to report that at the end of 2023, our Board continues to exceed the FTSE 100 Women Leaders Review target for women on a FTSE 100 Board. With regard to the Parker Review (the FTSE 350 Ethnic Diversity Submission), IHG continues to exceed the original target set by the Review of at least one director from an ethnically diverse background, with four ethnically diverse directors. Likewise, IHG has set targets for ethnic diversity in relation to senior management. Further detail and reporting on these targets can be found on pages 30 and 31.
Committee activities
The Board delegates certain responsibilities to its Committees to assist in ensuring effective corporate governance across the business. During 2023:
the Audit Committee focused on monitoring the Group’s risk management and internal controls systems (see its report on pages 107 to 111);
the Remuneration Committee focused on developments in relation to incentive plans, including approval of the Deferred Award Plan rules and the inclusion of ESG metrics in the Long Term Incentive Plan (see its report on pages 116 to 140);
the Responsible Business Committee focused on progress against the 2023 responsible business priorities, which support the Company’s Journey to Tomorrow responsible business plan (see its report on pages 112 and 113); and
the Nomination Committee focused on the execution of Board and Committee succession plans and the external evaluation (see its report on pages 114 and 115).
Further detail on the Group’s governance structure is given on page 100.
Board performance review
During the year, an external review of the effectiveness of the Board and its Committees was undertaken. I am pleased to report that overall the review supported the positive conclusions of the Board and its Committees as to their effectiveness. Further details of the external evaluation can be found on pages 104 to 106. Individual director feedback assessments were also conducted, details of which can be found on page 106.
Compliance and our dual listing
IHG continues to operate as a dual-listed company with a premium listing on the London Stock Exchange and a secondary listing on the New York Stock Exchange (NYSE). Under the UK listing rules, we are obliged to make a statement as to how we have applied the principles of the UK Corporate Governance Code (the Code). Under the NYSE listing rules, as a foreign private issuer, we are required to disclose any significant ways in which our corporate governance practices differ from those of US companies. To ensure consistency of information provided to both UK and US investors, we produce a combined Annual Report and Form 20-F.
Our Statement of compliance with the Code is on pages 141 and 142. A summary outlining the differences between the Group’s UK corporate governance practices and those followed by US companies can be found on page 258.
Looking forward
In 2024, the Board will focus on the outcomes of the external evaluation completed in 2023 and the delivery of the Group’s strategic objectives, while ensuring that the integrity of the Group’s governance framework is maintained.
Chair of the Board
19 February 2024
Our Board of Directors
At 19 February 2024, our
Board of Directors comprises:
Appointed to the Board: 1 June 2022
Skills and experience: Deanna is founder of CameoWorks, LLC, an advisory firm to CEOs of early-stage technology companies, and BoardReady. Between 2005 and 2011, Deanna worked at Barclays plc where she was Chief Operating Officer of the UK business before becoming CEO of UK and Western Europe Retail Banking and subsequently Vice Chair, Global Retail Banking. Prior to this, Deanna was the President of Consumer Banking at Washington Mutual, Inc. She previously held a number of Non-Executive board positions, including with Tesco PLC (as Senior Independent Director), Whitbread PLC, Worldpay, Inc., and AXA S.A., among others.
Board contribution: Deanna has extensive board-level and executive leadership experience, across a number of high-profile consumer-focused brands, and brings valuable insights and perspectives to IHG. As Chair, Deanna is responsible for leading the Board and ensuring it operates in an effective manner, promoting constructive relations with IHG’s shareholders and with stakeholders.
Other appointments
Deanna is a Non-Executive Director of Thomson Reuters Corporation. She also sits on the private board of Slalom, LLC.
Chief Executive Officer (CEO)
Appointed to the Board: 1 January 2018
Skills and experience: Elie was appointed Chief Executive Officer at IHG in July 2023. Prior to this, Elie served as Chief Executive Officer, Americas since February 2015. He joined the Group having spent six years as President and Chief Executive Officer of HMSHost Corporation, where he was also a member of the board of directors. Elie brings a broad global experience spanning hotel development, branding, finance, real estate and operations management as well as food and beverage expertise. Prior to joining IHG, Elie was Senior Advisor with McKinsey & Company from 2012 to 2014.
Board contribution: Elie is responsible for the executive management of the Group and ensuring the implementation of Board strategy and policy.
Elie is a member of the Executive Committee of the World Travel & Tourism Council and the U.S. Travel Association CEO Roundtable.
Board Committee membership key
Michael Glover
Chief Financial Officer (CFO)
Appointed to the Board: 20 March 2023
Skills and experience: Michael is an Accounting and Finance graduate of Baylor University and a certified public accountant. He was previously Chief Financial Officer of the Americas and Group Head of Commercial Finance, where he had group-wide responsibility for commercial finance operations, including the global procurement, sales and marketing and technology functions, as well as IHG’s System Fund. During his tenure with the business, Michael has held several roles at Group and regional levels, including CFO of IHG’s China region from February 2013 to September 2015, at which time Michael became Group Financial Controller, where he oversaw Tax, Treasury and Financial Reporting group-wide, and delivered a finance transformation programme that enabled significant simplification, automation and the transfer of work to IHG’s service centre.
Before IHG, Michael worked with several large Fortune 250 companies in a wide range of roles, beginning his career at Halliburton Energy Services in 1995.
Board contribution: Michael is responsible, together with the Board, for overseeing the financial operations of the Group.
N/A.
Graham Allan
Senior Independent Non-Executive Director (SID)
Appointed to the Board: 1 September 2020a
Skills and experience: Graham was Group Chief Executive of Dairy Farm International Holdings Ltd from 2012 to 2017, a leading Asian retailer headquartered in Hong Kong. He previously served in several senior positions at Pepsico/Yum! Brands from 1992 to 2012. He assumed the role of President of Yum! Restaurants International in 2003 and led the development of global brands KFC, Pizza Hut and Taco Bell in more than 120 international markets. Prior to his tenure at Yum! Restaurants, he worked as a consultant, including at McKinsey & Company. Graham has also been a Director of Americana Foods, the former operating company of the Americana Restaurants business.
Board contribution: Graham brings to the Board more than 40 years of strategic, commercial and brand experience within consumer–focused businesses across multiple geographies. Graham was appointed as Senior Independent Non-Executive Director from 1 January 2022 and became Chair of the Responsible Business Committee from 1 March 2023.
Graham is Senior Independent Non-Executive Director at Intertek plc, Independent Non-Executive Director of Associated British Foods plc and Independent Non-Executive Director of Americana Restaurants International plc. He also serves as Chairman of Bata Footwear, a private company.
Daniela Barone Soares
Independent Non-Executive Director
Appointed to the Board: 1 March 2021
Skills and experience: Daniela is currently Chief Executive Officer of Snowball Impact Management Ltd. She was formerly Chief Executive Officer of financial advisory and strategic consultancy, Granito Group. Prior to this, she was Chief Executive Officer at Impetus, a private equity foundation, and Executive Chair of Gove.digital, a private technology business working with the public sector to improve social services in Brazil. She has served on various commercial and non-profit boards and advisory boards, including Halma plc, Evora S.A. in Brazil and the UK National Advisory Board to the G8 Social Impact Investment Taskforce. She also spent nearly 15 years combined in roles at Save the Children, BancBoston Capital private equity, Citibank and Goldman Sachs.
Board contribution: Daniela brings to the IHG Board a clear commitment to Environmental, Social and Governance (ESG) responsibilities and in-depth knowledge of the role of technology in driving change.
Daniela is a Designated Member of Snowball Impact Investments GP LLP, a diversified investment fund focused on generating financial returns with a positive social and environmental impact. She is also a Trustee of the Haddad Foundation, a Member of the Advisory Board of Forward Institute and Trustee of the Institute for the Future of Work.
Graham was a member of the Board from 1 January 2010 to 15 June 2012 prior to being appointed as Chief Operating Officer of Dairy Farm International Holdings Limited.
Skills of Directors
a Experience in a CFO/senior finance role and/or investment banking sector
b Experience in a role leading corporate strategy, a management consulting role and/or a divisional CEO role
c Experience in consumer/brands organisation or a role as marketing executive with multibrand background
d Experience in a multinational organisation holding responsibility globally/across several regions
e Experience in a UK and US listed organisation
f Experience in a global CEO role
Our Board of Directors continued
Arthur de Haast
Appointed to the Board: 1 January 2020
Skills and experience: Arthur has held several senior roles in the Jones Lang LaSalle (JLL) group, including Chair of JLL’s Capital Markets Advisory Council and Chair and Global CEO of JLL’s Hotels and Hospitality Group. Arthur is also a former Chair of the Institute of Hospitality.
Board contribution: Arthur has more than 30 years’ experience in the capital markets, hotels and hospitality sectors, along with significant board-level knowledge around sustainability.
Arthur is Chair of JLL’s Capital Markets Advisory Council, an Independent Non-Executive Director of Chalet Hotels Limited and Chair of its Risk Management Committee, and a member of the Advisory Board of the Scottish Business School, University of Strathclyde, Glasgow.
Duriya Farooqui
Appointed to the Board: 7 December 2020
Skills and experience: Duriya is an Independent Director at Intercontinental Exchange, Inc. (ICE), a leading operator of global exchanges and clearing houses, and provider of mortgage technology, data and listings services. She is also an executive coach and mentor with The Exco Group, focused on helping Fortune 500 companies develop high-performing leadership teams. Duriya was previously President of Supply Chain Innovation at Georgia-Pacific, leading an organisation responsible for supply chain transformation. Prior to this, she was Executive Director of Atlanta Committee for Progress, a coalition of over 30 CEOs providing leadership on economic growth and inclusion opportunities in Atlanta. Duriya has also been a principal at Bain & Company and Chief Operating Officer of the City of Atlanta.
Board contribution: Duriya’s diverse board and executive-level experience brings valuable insights and perspectives to IHG. She combines more than two decades of relevant expertise in business strategy, transformation and innovation, with a clear commitment to driving responsible operations and diversity.
Duriya is an Independent Director of Intercontinental Exchange, Inc. She serves on the boards of NYSE and ICE NGX, both subsidiaries of ICE, and co-chairs the NYSE Board Advisory Council. She is also a Trustee of Agnes Scott College, a member of the Board of Councilors of The Carter Center and a Board Commissioner of Atlanta Housing.
Byron Grote
Appointed to the Board: 1 July 2022
Skills and experience: Byron’s career spanned over 30 years in the international oil and gas sector, including Standard Oil of Ohio and subsequently BP p.l.c, where he held management positions in retail marketing, trading, mining, exploration and production, renewables, petrochemicals, and finance. He served as an Executive Director on the Board of BP p.l.c. for 13 years and was the Chief Financial Officer from 2002 until 2011. He previously served as the Senior Independent Director and Audit Committee Chair at Anglo American plc, as a Non-Executive Director and Audit Committee Chair at Unilever PLC and Unilever N.V., and Non-Executive Director at Standard Chartered PLC.
Board contribution: Byron has extensive experience across a range of leading international businesses, both at board level and in senior management positions, particularly in finance and chairing audit committees. He is a participant in the European Audit Committee Leadership Network and a member of the Regulation Group of the Audit Committee Chairs’ Independent Forum. Byron assumed the role of Chair of the IHG Audit Committee in March 2023.
Byron is the Senior Independent Director and Chair of the Audit Committee at Tesco PLC. He is also a Non-Executive Director at Inchcape PLC and on the Supervisory Board of Akzo Nobel N.V., where he is the Deputy Chair and Audit Committee Chair.
Audit Committee member
Remuneration Committee member
Responsible Business Committee member
Nomination Committee member
Chair of a Board Committee
Sir Ron Kalifa
Appointed to the Board: 1 January 2024
Skills and experience: Ron was formerly Chief Executive Officer of Worldpay for over 10 years, serving as Vice Chairman thereafter and an Executive Director until February 2020. His longstanding career in financial services has allowed him to gain experience in marketing, strategy and operations on a global scale. Ron led a government-commissioned, independent Review of UK Fintech, which proposed a recommended strategy and delivery model to maintain the UK’s position as a global leader in financial services. Ron was knighted in the Queen’s Jubilee Birthday 2022 Honours List for services to financial services, technology and public service.
Board contribution: Ron brings to the IHG Board in-depth knowledge of high-growth sectors of financial markets, including payments and fintech strategy. He also has a wealth of experience through his tenure on various boards, including not-for-profit boards.
Ron is Chairman of Network International Holdings Plc. He is a Non-Executive Director and the Senior Independent Director on the Court of Directors of the Bank of England and a Non-Executive Director for the England & Wales Cricket Board. He is also Vice Chair at Brookfield Asset Management.
Ron is a Trustee of the Royal Foundation of the Prince and Princess of Wales.
Angie Risley
Appointed to the Board: 1 September 2023
Skills and experience: Angie’s career in human resources has spanned executive roles across a number of sectors, including at United Biscuits; Whitbread as an Executive Director, Group HR Director; and Lloyds Banking Group as a member of the Executive Committee as Group HR Director. She recently retired from Sainsbury’s where she was Group HR Director for 10 years and a member of the Operating Board.
Angie previously served as Non-Executive Director of Serco Group plc (and was Chair of the Remuneration Committee) as well as Sainsbury’s Bank plc, Arriva and Biffa, and she has been a member of the Low Pay Commission.
Board contribution: Angie brings to the IHG Board a wide range of experience from a variety of sectors and a strong background in human resources. Angie became Chair of the Remuneration Committee from 1 January 2024.
Angie is currently a Non-Executive Director at Smith & Nephew plc, where she is Chair of the Remuneration Committee and a member of the Nomination and Governance Committee and the Compliance and Culture Committee.
Sharon Rothstein
Appointed to the Board: 1 June 2020
Skills and experience: Sharon currently serves as Operating Partner of Stripes Group, a growth equity firm investing in high-growth consumer and SaaS (Software as a Service) companies. She previously served as Executive Vice President, Global Chief Marketing Officer and, subsequently, as Executive Vice President, Global Chief Product Officer for Starbucks Corporation. In addition, Sharon has held senior marketing and brand management positions at Sephora LLC, Godiva Chocolatier, Inc., Starwood Hotels & Resorts Worldwide, Inc., Nabisco Biscuit Company and Procter & Gamble Company.
Board contribution: Sharon brings extensive brands, marketing and digital expertise, having worked in senior positions for more than 25 years at iconic global companies. In addition to her knowledge of the hospitality industry, Sharon has wide-ranging board-level experience in a number of consumer-focused businesses.
Sharon serves on the boards of Yelp, Inc. and Block, Inc., and also for private companies Califia Farms, LLC and Levain Bakery, Inc.
Changes to the Board, and its Committees, and Executive Committee
Board and Committee membership and attendance in 2023
date
appointments
Committee
a
Business
In principle, the full Board attends the relevant sections of the Audit Committee meetings when financial results are considered.
In principle, the Chair attends all Committee meetings.
Keith Barr stood down as Chief Executive Officer on 30 June 2023 and did not attend the Board strategy meeting prior to stepping down.
Elie Maalouf was appointed Chief Executive Officer from 1 July 2023.
Paul Edgecliffe-Johnson stood down as Chief Financial Officer on 19 March 2023.
Michael Glover was appointed to the Board as Chief Financial Officer from 20 March 2023.
Graham Allan stood down from the Remuneration Committee and became Chair of the Responsible Business Committee from 1 March 2023 following Jill McDonald’s retirement from the Board on 28 February 2023.
Daniela Barone Soares did not attend a Board meeting due to a prior commitment.
Ian Dyson retired from the Board on 28 February 2023 and did not attend a Remuneration Committee meeting prior to his retirement.
Byron Grote became Chair of the Audit Committee from 1 March 2023 following Ian Dyson’s retirement from the Board on 28 February 2023. Byron also joined the Nomination Committee from 1 March 2023.
Jill McDonald retired from the Board on 28 February 2023.
Angie Risley was appointed to the Board from 1 September 2023.
Sharon Rothstein was unable to attend a Board meeting due to a prior commitment.
Our Executive Committee
In addition to Elie Maalouf and
Michael Glover, the Executive
Committee comprises:
Heather Balsley
Appointed to the Executive Committee: November 2023 (joined the Group: 2007)
Skills and experience: Before being appointed as Global Chief Customer Officer, Heather served as SVP, Global Loyalty & Partnerships for four years. During that time, Heather was responsible for the Company’s loyalty and partnerships business, including the re-launch of IHG One Rewards and co-brand credit card business, delivering significant successes. She has also served as SVP, Global Marketing, Mainstream Brands, developing and delivering brand strategies that enhance the guest experience and drive performance.
Heather also worked across all brand segments as SVP, Americas Brands and Marketing and held leadership roles in strategy. Throughout her time at IHG, she has worked extensively across markets globally and with our owners.
Prior to joining IHG, Heather spent seven years as a consultant with Marakon Associates in New York, where she advised Fortune 500 companies on performance-enhancing strategies.
She holds an MBA from Harvard Business School and a bachelor’s degree in Economics and Sociology from Duke University.
Key responsibilities: Heather leads all aspects of IHG’s brand strategy, positioning, marketing, commercial performance, customer data and analytics and the end-to-end customer experience across IHG’s portfolio of 19 brands, including our award-winning IHG One Rewards loyalty programme.
Jolyon Bulley
Chief Executive Officer, Americas and Group Transformation Lead, Luxury & Lifestyle
Appointed to the Executive Committee: November 2017 (joined the Group: 2001)
Skills and experience: A career hotelier, Jolyon has held a number of significant roles at IHG and, before being appointed as CEO, Americas in 2023, was CEO for Greater China from 2018.
Prior to that, he was Chief Operating Officer (COO) for the Americas from 2014 to 2017, leading the region’s operations for franchised and managed hotels, in addition to cultivating franchisee relationships and enhancing hotel operating performance. Jolyon also served as COO for Greater China for almost four years, with oversight of the region’s hotel portfolio and brand performance, new hotel openings and owner relations. In 2021, in addition to his role as CEO for Greater China, Jolyon was appointed to lead the Luxury & Lifestyle Transformation Team.
Jolyon joined IHG in 2001, as Director of Operations, New South Wales in Australia, and then held roles of increasing responsibility across IHG’s Asia-Pacific region. He became Regional Director Sales & Marketing for Australia, New Zealand & South Pacific in 2003, relocated to Singapore in 2005 and held positions of Vice President Operations South East Asia & India, Vice President Resorts, and Vice President Operations, South East & South West Asia.
Jolyon graduated from William Angliss Institute in Melbourne with a concentration in Tourism and Hospitality.
Key responsibilities: Jolyon is responsible for the management, growth and profitability of the Americas region and the development and defining of a clear strategy for our Luxury & Lifestyle brands’ performance and growth.
Our Executive Committee continued
Yasmin Diamond, CB
Executive Vice President, Global Corporate Affairs
Appointed to the Executive Committee: April 2016 (joined the Group: 2012)
Skills and experience: Before joining IHG in 2012, Yasmin was Director of Communications at the Home Office, where she advised the Home Secretary, ministers and senior officials on the strategic development and daily management of all the Home Office’s external and internal communications. She was previously Director of Communications at the Department for Environment, Food and Rural Affairs; Head of Communications for Welfare to Work and New Deal; and Head of Marketing at the Department for Education and Skills. Before joining government communications, Yasmin was Publicity Commissioner for the BBC, where she led communications activity around the launch of a new digital learning channel and around the BBC’s educational output for both adults and children.
In 2011, Yasmin was awarded a Companion of the Order of the Bath (CB) in the New Year’s Honours List in recognition of her career in government communications. In addition, Yasmin is an Independent Non-Executive Director of the Rugby Football Union and is a Board Trustee member of the Sustainable Hospitality Alliance.
Key responsibilities: Yasmin is responsible for all global corporate affairs activity, focused on supporting and enabling IHG’s broader strategic priorities. This includes all external, internal, hotel and owner communications; global government affairs work; and leading IHG’s Corporate Responsibility strategy.
Nicolette Henfrey
Executive Vice President, General Counsel and Company Secretary
Appointed to the Executive Committee: February 2019 (joined the Group: 2001)
Skills and experience: Nicolette joined IHG in 2001. Prior to leading the Business Reputation and Responsibility function, she held a number of senior legal roles, including Deputy Company Secretary. During that time, she worked with the Board, Executive Committee and wider organisation to ensure best-in-class delivery and compliance across legal, governance and regulatory areas. Nicolette is a solicitor qualified in England and South Africa and previously worked as a corporate lawyer at Linklaters in London and Findlay & Tait (now Bowmans) in South Africa.
Key responsibilities: Nicolette has global responsibility for all areas of corporate governance, legal, risk management, insurance, regulatory compliance, internal audit and hotel standards.
Wayne Hoare
Appointed to the Executive Committee: September 2020 (joined the Group: 2020)
Skills and experience: Wayne has more than 30 years of experience in HR and joined IHG from RCL FOODS, where he spent seven years as the company’s Chief Human Resources Officer, leading the culture building and talent strategy for 25,000 employees. Prior to joining RCL FOODS, Wayne spent 26 years at Unilever, where he worked across a broad range of roles in mature and developing markets across Europe, North America, Asia, Africa and the Middle East.
Wayne’s most recent role at Unilever was as SVP, HR – Global Centres of Expertise, where he held responsibility for the Global Talent, Leadership Development and Reward teams. He led the development of the company’s HR strategy to enable a performance culture focused on growth.
Key responsibilities: Wayne has global responsibility for talent management, learning and capability building, diversity, organisation development, reward and benefit programmes, employee relations and all aspects of the people and organisation strategy for the Group.
Kenneth Macpherson
Chief Executive Officer, EMEAA
Appointed to the Executive Committee: April 2013 (joined the Group: 2013)
Skills and experience: Kenneth became CEO, EMEAA in January 2018. He was previously IHG’s CEO for Greater China, a role he held from 2013 to 2017. He has extensive experience across sales, marketing strategy, business development and operations. In addition to 12 years living and working in China, Kenneth’s career includes experience in Asia, the UK, France and South Africa. Before IHG, he worked for 20 years at Diageo, one of the UK’s leading branded companies. His senior management positions included serving as Managing Director of Diageo Greater China, where he helped to build the company’s presence and led the landmark deal to acquire ShuiJingFang, a leading manufacturer of China’s national drink, and one of the first foreign acquisitions of a Chinese listed company.
Key responsibilities: Kenneth is responsible for the management, growth and profitability of the EMEAA region. He also manages a portfolio of hotels in some of the world’s most exciting destinations, in both mature and emerging markets.
George Turner
Chief Commercial and Technology Officer
Appointed to the Executive Committee: January 2009 (joined the Group: 2008)
Skills and experience: In February 2019, George was appointed as Chief Commercial and Technology Officer. Prior to this, he spent over a decade as IHG’s EVP, General Counsel and Company Secretary, with responsibility for corporate governance, risk and assurance, legal, corporate responsibility and information security. He is a solicitor, qualifying to private practice in 1995. Before joining IHG, George spent over 10 years with Imperial Chemical Industries PLC, where he held various key positions including Deputy Company Secretary and Senior Legal Counsel.
Key responsibilities: George’s responsibilities include distribution; channels; revenue management; property, owner, guest and enterprise solutions; guest reservations and customer care; digital; information security; technology; and global sales.
Gender of Board and Executive Committee
Number of senior
positions on theBoard (CEO, CFO,SID and Chair)
Ethnic background of Board and Executive Committee
The information in the tables above is compiled from self-reported data from the relevant individuals.
As at 19 February 2024, the Company complies with the following targets on board diversity in accordance with Listing Rule 9.8.6R(9): (i) at least 40% of the individuals on the Board are women; (ii) at least one senior position, namely the Chair of the Board, is held by a woman; and (iii) at least one individual on the Board is from a minority ethnic background.
Governance Governance structure Governance framework Our governance framework is headed by the Board, which while conducting business in a responsible manner. delegates certain management and oversight responsibilities to Executive management is responsible for the implementation various Committees to further IHG’s purpose, values and strategy, of strategy that is delivered by the Group’s workforce. THE BOARD The Board is responsible for promoting the long-term sustainable success of the Group and establishes its purpose, values and strategy. Operational matters, routine business and information disclosure procedures are delegated by the Board to Management Committees, with the exception of a number of key decisions and matters that are reserved for the Board. The schedule of matters reserved for the Board was reviewed and approved at the December 2023 Board meeting and is available on our website. The Board is supported by its four Principal Committees (Audit, Nomination, Remuneration and Responsible Business), all of which consist of Non-Executive Directors. These committees assist the Board in carrying out its functions and in overseeing the delivery of the strategic objectives it sets for management. See pages 101 to 103 for information. REPORTING BOARD COMMITTEES Audit Committee Leads on internal controls and risk management; financial reporting; internal audit; fraud and external audit and compliance. Maintains working relationships with management; Global Internal Audit; Disclosure Committee; and the external Auditor. See pages 107 to 111. Nomination Committee Leads on and examines nominations and appointments to the Board and its Committees and Responsible for reviewing the Group’s leadership needs. See pages 114 and 115. Remuneration Committee Leads on and reviews all aspects of remuneration of the Executive Directors and Executive Committee members and remuneration policy for senior executives. See pages 116 to 140. Responsible Business Committee Leads on responsible business objectives and strategy, including our approach to sustainable development and responsible procurement. Reviews our impact on the environment and communities. Reviews the Board’s engagement with the workforce and the Group’s diversity, equity and inclusion (DE&I) agenda. See pages 112 and 113. MANAGEMENT COMMITTEES Operational matters, routine business and information disclosure procedures are delegated by the Board to Management Committees. The Management Committees are comprised of senior executives, including, where relevant, the Executive Directors. Executive Committee Chaired by the CEO, it considers and manages the day-to-day strategic and operational issues facing the Group. Its remit includes executing the strategic plan once agreed upon by the Board, monitoring the Group’s performance and providing assurance to the Board in relation to overall performance and risk management. General Purposes Committee Chaired by an Executive Committee member, it attends to items of a routine nature and to the administration of matters, the principles of which have been agreed previously by the Board or an appropriate Committee. Disclosure Committee Chaired by the Group’s Financial Controller, it ensures that proper procedures are in place for statutory and listing requirements. This Committee reports to the Chief Executive Officer, the Chief Financial Officer and the Audit Committee.
Board activities
Key areas of focus during the year
Board meetings
The table below gives an overview of some of the regular and standing items discussed and decisions made at Board meetings during the year. The table overleaf sets out information on the key matters discussed by the Board in 2023 and our Section 172 statement includes information about how stakeholders were considered and impacted outcomes.
In several areas, much of the substantive preparation work took place within the Board’s Committees and was later confirmed by the Board or the whole Board attended certain sections of Committee meetings. Where this was the case, the discussions are treated as having taken place at Board level.
Performance The Board received regular updates from the CEO and CFO on recent and current trading, including RevPAR, operating profit, net system size growth and cash flow performance. These were also compared to the results of competitors and budget. Internal projections were compared with the consensus of forecasts by analysts to ensure that the Company’s prospects were appropriately reflected in market expectations. The Board also monitored the progress of the share buyback programme. Throughout the year, the Board also received regional performance updates from each of the regional Chief Executive Officers, covering regional market and competitive landscapes, financial performance, regional strategy and progress on regional initiatives, and risks and mitigation measures. Governance and assurance The Board received regular updates on principal and emerging risks, internal controls, risk management systems, the Group’s risk appetite, litigation, cybersecurity, compliance programmes and the global insurance programme. Committee Chairs also delivered reports on risk topics in relation to the areas of remit for their respective Committees. The Board received regulatory development updates from the General Counsel and Company Secretary, covering regulatory changes in areas such as corporate reporting and governance, executive remuneration, climate change, shareholder body voting guidelines and other ESG matters. The Board also reviewed and approved the Group’s Code of Conduct. Stakeholders The Board receives a regular report outlining share register movements, relative share price performance, investor relations activities and engagement with shareholders. The Board also considered views shared from the regular investor and analyst perception studies and feedback surveys, as well as individual meetings with investors. The Board receives a regular report outlining various geopolitical and social issues pertaining to IHG and its business; corporate affairs activity supporting IHG’s corporate reputation, brands and responsible business agenda; owner and colleague engagement; government and advocacy programmes; and industry-body engagement.
Board activities continued
Key areas of focus during the year continued
Key matters discussed in 2023 and Section 172 statement
Section 172 of the Companies Act 2006 requires a director of a company to promote the success of that company, and in doing so, the director must have regard to six factors. These are: the long-term consequences of a decision; the interests of its employees; business relationships with suppliers, customers and others; its impact on the community and environment; the desirability of maintaining high standards of business conduct; and the need to act fairly between members of the company. The table below summarises some of the main matters dealt with by the Board during the year and how it took the Section 172 factors into account. The relevant Section 172 factors are identified in the key at the bottom of the page.
Financial plan
The Board evaluated and approved the financial plan for the period 2023 to 2025.
The Board considered and approved a final dividend for 2022, an interim dividend for 2023 and a $750m share buyback programme.
Group finance
The Board approved the update of the Group’s Euro Medium Term Note (EMTN) bond programme and the issuance of a €600m bond.
Financial statements
The Board considered and approved the full and half-year financial results statements, including the going concern and viability statements, and whether the Annual Report was fair, balanced and understandable.
Brand portfolio
The Board approved the launch of the Garner brand.
Corporate strategy refresh
The Board endorsed the Group’s refreshed corporate strategy.
Luxury & Lifestyle
The Board endorsed the InterContinental brand refresh.
Growth strategy in regions – Americas, EMEAA and Greater China
The Board received in-depth regional updates from the CEOs of each of the Group’s three regions, and provided oversight with regard to the Group’s growth strategy and strategic priorities.
The Board approved the appointments of Elie Maalouf as Chief Executive Officer, Angie Risley as Chair Designate of the Remuneration Committee and Ron Kalifa as a Non-Executive Director.
Executive Committee appointments
The Board endorsed the changes and appointments to the Executive Committee during the year.
Regulatory Compliance
The Board approved new or refreshed regulatory compliance policies.
Incentive plan
The Board approved the adoption of new Deferred Award Plan rules.
Our people and culture
Voice of the Employee workforce engagement programme.
Annual Board strategy meeting The 2023 Annual Board strategy meeting was held in Atlanta at the Group’s Americas region headquarters. The Board undertook a detailed review in respect of the following areas: the industry landscape and performance; the competitive context; IHG’s business model, financial model and strategy; and strategic choices to strengthen performance. The meeting also included an ‘outside-in’ perspective from an external adviser on the Group’s trajectory, further opportunities for growth and risks to delivery of the plan. Each Board member received a full briefing in advance of the Board strategy meeting, which enabled a productive and wide-ranging discussion with concrete outcomes, oriented around a relentless focus on growth, a strong commercial engine and a high-performance culture. Outcomes and action items were also addressed at subsequent Board meetings. Board members also had the opportunity to engage informally with colleagues from our Atlanta office.
Our shareholders and investors
During 2023, IHG continued its open dialogue with shareholders and investors and conducted its annual programme of investor relations activities with support from its brokers and advisers. The Board received regular updates and considered feedback as outlined on page 101. In addition, our Registrar and American Depositary Receipts (ADR) programme custodians have supported shareholders and ADR holders with their queries.
Committee Chairs and the Senior Independent Director are available for shareholders if they have concerns they wish to discuss.
Annual General Meeting (AGM)
The Board was pleased to meet shareholders in person at the 2023 AGM.
Our 2024 AGM will be held on Friday 3 May 2024. The notice of meeting will be sent to shareholders and made available on our website in due course.
Director appointments and induction
Director appointments
Details of the appointments to the Board made during 2023 are described in the Nomination Committee Report on pages 114 and 115.
New Director inductions
Upon appointment, all new Directors undergo a comprehensive and formal induction programme that is tailored to meet their individual needs and respective roles on the Board. We believe this is crucial to ensure our Directors have a full understanding of all aspects of our business and familiarity with the Group’s purpose, culture and values to ensure they can contribute effectively to the Board.
For Michael Glover, a bespoke induction plan focused on his transition to an Executive Director and Executive Committee role was prepared, with a particular focus on his responsibilities as CFO. His induction included meetings with key external advisers and stakeholders and an overview of corporate governance requirements in relation to his responsibilities as an Executive Director.
Given Elie Maalouf’s longstanding role on the Board and Executive Committee, following his appointment as CEO, a targeted transition plan was put in place focusing on aspects specific to his role as CEO, with a particular emphasis on key investor, colleague, owner, media and industry relationships.
For Angie Risley and Ron Kalifa, tailored induction plans were prepared in advance of their appointment to the Board. Their plans broadly covered the following topics, while being tailored to their Committee appointments and roles, with a particular emphasis on understanding IHG’s business, long-term strategy, risks and opportunities within the business and governance processes and controls:
Additional appointments
During 2023, the Board considered and endorsed the following additional appointments of Directors:
In each case, the Board took into account other appointments, the time commitment required for each role and the context of the UK Corporate Governance Code, including institutional investor and proxy adviser guidelines concerning over-boarding. It was concluded that the additional appointments should not adversely impact their performance but should enhance their ability to provide constructive challenge and strategic guidance.
Ongoing Director training and development
We understand the importance of an ongoing training programme for Directors to enable them to fully understand the Group’s business and operations in the context of the rapidly developing environment in which it operates. The Chair regularly reviews the training and development needs with each Director and the Board is made aware of training opportunities.
Board and Committee meetings are regularly used to update Directors on developments in the environment in which the business operates and in-depth presentations are provided on key topical areas. In 2023, these sessions included updates on assurance and governance matters; perspectives in relation to corporate philanthropy and community investment; and market updates in relation to remuneration and pensions.
In addition, the Company Secretary provides regular updates on regulatory, corporate governance and legal matters, and Directors are able to meet individually with senior management if necessary.
External evaluation
In line with best practice, each year, the performance and effectiveness of the Board and its Committees are carefully reviewed through a formal evaluation process, which is traditionally facilitated externally every three years. An external evaluation was last completed in 2019, with internal evaluations completed in 2020, 2021 and 2022 following agreement to defer an external evaluation to 2023 due to the recent appointment of the Chair in 2022.
In 2023, an external evaluation was undertaken and conducted by Independent Audit Limited (‘IA’), following a comprehensive evaluation of several providers. IA has no prior connection with the Company or any of its Directors, with the exception of conducting an external review for Hargreaves Lansdown PLC in 2021, a company on which the Chair has previously served as a director.
An outline of the evaluation process and details of the results of the review are set out on the following pages.
Board effectiveness evaluation
Board evaluation process Stage 1 Appointment Following a review of several external board evaluation providers, IA was commissioned to facilitate the evaluation of the Board and its Committee. Stage 2 Preparation Questionnaires for the Board and four Committees were prepared by IA in discussion with the Company Secretary and the Chair and agreed by each Committee Chair. Stage 3 Completion of questionnaires and follow – up interviews The Board questionnaires were completed by all Board members, the Company Secretary and relevant members of senior management and follow-up interviews with each member of the Board and Company Secretary were conducted. Stage 4 Review of Board papers and meeting observation A review of Board papers and the observation of meetings of the Board and of the Audit, Nomination, and Responsible Business Committees was conducted by IA. Stage 5 Reporting IA analysed the results and complied a report for the Board and each Committee which was discussed in draft with the Chair and Company Secretary and presented to the Board and each of the Committees for discussion and consideration. IA invited Board members to follow up individually if desired. Results of Governance Review Strengths: The results of IA’s external review noted several strengths: 1) The Board’s composition is comprised of a good mix of skills, experience, and personalities that work well with each other and management. 2) New Board members have brought a high degree of openness and willingness to engage. 3) Engagement has been open and transparent, and Board members are able to contribute to productive debate in the decision-making process. Areas of focus for the year ahead: 1) Consideration of the ‘Big Trends’: continued consideration of industry trends and dynamics, including ever-changing customer needs and expectations and competitor actions. 2) Executive succession planning: following both CEO and CFO succession, looking to the capabilities, skills, diversity and characteristics needed for the future, focusing on Executive succession planning and strengthening the Board’s relationship with recently promoted senior management. 3) Risk, technology & ESG: given the dynamic external environment, continued focus on IHG’s overarching Risk Management Framework, emerging technologies and the wider ESG landscape.
Board effectiveness evaluation continued
Board Committees
The external evaluation process also assessed the effectiveness and support provided by and to the Board Committees. Through the process, it was confirmed that they have the necessary attributes to support their effective operation and that the Committees are well integrated into the Board decision-making processes. Each of the
Committees reviewed the findings and agreed the respective actions with consideration of the overall Board findings where they were deemed relevant to the Committee’s work. Further details are set out in each Committee Report on pages 107, 112, 115 and 125.
Performance evaluation of Directors In addition to the external Board evaluation process outlined above, the Chair assessed the individual performance of the Non-Executive Directors and carried out one-to-one meetings with each of them, focusing on their contribution to the Board and Principal Committees and engagement with fellow Directors, taking into account their relevant skills, knowledge and experience. Particular points of note were shared with the individual Directors and overall, the Chair concluded that the Directors perform their duties independently and effectively and that they dedicate sufficient time to discharge their Board responsibilities. The performance assessment of the Chair was led by the SID. The evaluation focused on: overall leadership of the Board; the Board’s culture and the Chair’s ability to facilitate constructive Board relations; and managing the Board in accordance with high standards of corporate governance. The CEO evaluation was led by the Chair, who collected feedback to a series of questions from the Non-Executive Directors. Key areas of focus included: the Group’s performance and impact of the CEO; the relationship and ability to work collaboratively and transparently with the Board; delivery of the Group’s growth agenda; regard for community and the environment; building talent and organisational capabilities; and progress in relation to IHG’s 2023 plan and future strategic priorities.
Audit Committee Report Strong and controls, governance and the of evolving assessment risks remain core of at how the IHG responsibly operates .” Byron Grote Chair of the Audit Committee Highlights: Ongoing review of the Group’s work to streamline and further automate core financial processes to drive efficiency while maintaining robust controls. Review of the disclosure of, and assurance over, financial and non-financial data, including both climate-related and wider ESG data, in line with evolving regulatory developments and external trends. Review of emerging and evolving risks linked to IHG’s growth strategy, changes in technology and other major initiatives, and regulatory developments. Review of governance and assurance of systems transitions in Finance and HR. Overview of the Group’s response to the Financial Reporting Council (FRC) consultation relating to the UK Corporate Governance Code. Key duties and role of the Committee Key objectives and summary of responsibilities The Audit Committee is responsible for ensuring that IHG maintains a strong control environment. It monitors the integrity of IHG’s financial reporting, including significant financial reporting judgements; maintains oversight and reviews our systems of internal control and risk management; monitors and reviews the effectiveness and performance of internal and external audit functions; and reviews the behaviours expected of IHG’s employees through the Code of Conduct and related policies. The Committee’s role, responsibilities and authority delegated to it by the Board are set out in its Terms of Reference (ToR), which are reviewed annually and approved by the Board. The ToR are available at ihgplc.com/investors under Corporate governance. As noted, the Committee focused its attention on reviewing and obtaining assurance in relation to emerging and evolving risks as well as the Group Financial Statements and controls. Key areas of focus over the year have been: the evolution of the Group’s financial governance programme, including streamlining processes and automation of controls; internal controls and assurance in connection with the Group’s HR system transition and Iberostar integration; the conclusions and recommendations of an external quality assessment of the Group’s Risk and Assurance function; review of the internal financial control framework of owned, leased, managed lease and managed hotels, including deployment of software to enhance controls and property-level workflows; and the Group’s approach to managing on-going compliance risks, including in relation to hotel operational safety and security, supply chain, data privacy and ethics and compliance. Membership and attendance at meetings Details of the Committee’s membership and attendance at meetings are set out on page 96. The Chair of the Board, CEO, CFO, Group Financial Controller, Head of Risk and Assurance, Deputy Company Secretary and our external Auditor attended all meetings in 2023. The General Counsel and Company Secretary also normally attends all meetings and in 2023, attended all but one of the meetings. Other attendees are invited to meetings as appropriate and the CEO and all other Directors were invited to Committee meetings where the approval of financial reporting was considered and discussed. The Committee continues to hold private sessions with the internal and external Auditors without the presence of management to ensure that a culture of transparency is maintained. The Committee Chair continues to have recent and relevant financial experience and all members of the Committee are Independent Non-Executive Directors. In accordance with the Code, the Board also considers that the Committee as a whole possesses competence relevant to the Company’s sector, having a range of financial and commercial experience in the hospitality industry and the broader commercial environment in which the Group operates. Further details of the skills and experience of the Committee members can be found on pages 93 to 95. Reporting to the Board Following each Committee meeting, the Committee Chair updates the Board on key issues discussed. The papers and minutes for each meeting are circulated to all Board members, who are invited to request further information if required and to provide any challenge where necessary. Effectiveness of the Committee During the year, the Committee’s effectiveness was reviewed as part of the external Board evaluation process. The Committee concluded that it remains effective, focuses on the right issues and provides a good level of challenge. An area identified for future focus is further developing Committee papers to continue to enhance discussions.
Audit Committee Report continued
Financial and narrative reporting
During the year, the Committee reviewed and recommended approval of the interim and annual Financial Statements (considering the relevant accounting and reporting matters such as key judgement areas, going concern and viability statements, the financial reporting impacts of commercial litigation and disputes, exceptional items and impairment reviews) and the Group’s quarterly trading updates. All members of the Board are asked to attend these meetings.
As well as receiving input and guidance from the external Auditor on the areas outlined above, the Committee also received regular reports from the Chair of the Disclosure Committee, which liaised closely with other external advisers of the Group to ensure that disclosure and regulatory requirements were being appropriately considered and met. Copies of the Disclosure Committee’s minutes were also provided to the Committee.
The Committee received early drafts of the Annual Report and Form 20-F 2023 (Annual Report), and when providing comments considered: (i) the process for preparing and verifying the Annual Report, which included review by the Executive Committee and input from senior employees in the Company Secretariat, Legal, Operations, Strategy, Human Resources, Finance, Risk and Assurance teams; (ii) a report from the Chair of the Disclosure Committee; and (iii) a checklist prepared by the Annual Report team confirming compliance with the relevant regulatory requirements.
The Committee also considered management’s analysis of how the content, taken as a whole, was ‘fair, balanced and understandable’, and whether it contained the necessary information for shareholders to assess the Group’s position, performance, business model and strategy. In order to reach this conclusion, a dedicated project team worked on the contents of the Annual Report and a detailed verification process to confirm the accuracy of the information contained within the Annual Report was undertaken by the Financial Planning and Analysis department. The Committee then considered both the structure and content of the Annual Report to ensure that the key messages were effectively and consistently communicated and that meaningful links between the business model, strategy, KPIs, principal risks and remuneration were clearly identified throughout the Annual Report. The Committee also considered the proportionate and consistent consideration of climate matters across the Annual Report, including the Task Force on Climate-Related Financial Disclosures (TCFD) statement and an asset-by-asset review for impairment purposes.
Alongside this review, the Committee considered guidance provided by the FRC throughout the year, including in relation to the concept of an Audit and Assurance Policy within the proposed changes to the UK Corporate Governance Code. The Company’s consultation response to the FRC on the proposal was reviewed by the Committee. The Committee also reviewed trends in ESG reporting requirements and considered governance and assurance implications.
Following a review of the contents of the Annual Report alongside the aforementioned criteria, the Committee reported its recommendation to approve the Annual Report to the Board.
Significant matters in the 2023 Financial Statements
Throughout 2023, the Committee provided ongoing challenge to management’s accounting, reporting and internal controls. The Committee discussed with management and the external Auditor the significant areas of complexity, management judgement and estimation in relation to the Financial Statements, and the impact of any accounting developments or legislative changes. The Committee has satisfied itself that management had adequately identified and considered all potentially significant accounting and disclosure matters. The key items discussed are outlined on pages 110 and 111.
Internal control and risk management
The Board is responsible for establishing procedures to manage risk, overseeing the internal control framework and determining the nature and extent of the principal risks the Company is willing to take to achieve its long-term objectives. The Committee supports the Board by reviewing the effectiveness of the Group’s internal control and risk management systems and assessing emerging and principal risks and undertook such a review in respect of 2023.
In order to effectively review the internal control and risk management systems, the Committee:
As part of the Committee’s review of the internal control and risk management systems, key financial, operational and compliance controls across the business continue to be monitored and tested throughout the year. The Committee assesses the approach to Sarbanes-Oxley Act 2002 (SOX) compliance in accordance with our US obligations and reviews reports on the progress of the SOX programme at each meeting. During the year, the Committee received updates on the delivery of the training programme for SOX control owners and the longer-term objective of reducing the overall control count.
During 2023, the Committee considered the activity undertaken by the Risk and Assurance team to review and refresh risk profiles and integrate resilience planning into the prioritisation and capability building of the Group’s business teams. The Committee also received updates on:
Having reviewed the internal controls and risk management systems throughout the year, the Committee concluded that the Group continues to have an effective system of risk management and internal controls, and that there are no material weaknesses in the control environment.
Tax risks, policies and governance
The Group’s CFO has responsibility for tax and tax policies at Board level. These policies and procedures are subject to regular review and update and are approved by the Audit Committee. Procedures to minimise risk include the preparation of thorough tax risk assessments for all transactions carrying material tax risk and,
where appropriate, material tax uncertainties are discussed and resolved with tax authorities in advance.
Our Approach to Tax document is available at
ihgplc.com/en/responsible-business/policies-and-position-statements
Principal risk areas
During the year, the Committee discussed and assessed the range and aggregate impact of dynamic risks that the Group faced in the context of the ongoing volatility in the geopolitical and macroeconomic environment. Alongside the review of the overall portfolio of risks, the Committee requested and received updates on the following specific areas:
Further details of our principal risks, uncertainties and review process can be found on pages 42 to 49.
Non-audit services
IHG’s Audit and Non-Audit Services Pre-Approval Policy helps to ensure that the external Auditor’s independence and objectivity are not impacted by non-audit services provided by the external Auditor. The policy is reviewed by the Audit Committee annually.
The policy requires that pre-approval is obtained from the Audit Committee for all services provided by the external Auditor before any work can commence, without any de minimis threshold in line with US SEC requirements and UK ethical standards. The Committee reviewed the audit and non-audit fees incurred with the external Auditor and noted that there had been no prohibited services (as defined by SOX or under UK ethical standards) provided to the Group during the year. The Committee is prohibited from delegating non-audit services approval to management and compliance with the policy is actively managed.
IHG is committed to maintaining non-audit fees at a low level and the Committee remains cognisant of the guidelines of investor advisory bodies on non-audit fees. During 2023, 10% of services provided to the Group were non-audit services (2022: 11%), primarily related to System and Organisation Controls (SOC) Reports. These services are typically performed by external auditors as knowledge of the Company or Group is necessary for the provision of the non-audit services. Details of the fees paid to PwC for non-audit and statutory audit work during 2023 can be found on page 178. The Committee is satisfied that the Company was compliant during the year with the FRC’s Ethical and Auditing Standards in respect of the scope and maximum permitted level of fees incurred for non-audit services provided by PwC. Where non-audit work is performed by PwC, both the Company and PwC ensure adherence to robust processes to prevent the objectivity and independence of the external Auditor being compromised.
Risk and assurance – Internal Audit
The Committee discusses and approves the Internal Audit annual plan, which aims to provide objective and insightful assurance that appropriate controls are in place to support our strategy and growth ambitions. Progress against the Internal Audit plan is reported at each meeting and, during 2023, the Committee reviewed several areas set out in the plan, including programme governance and oversight of expenditure and benefit delivery.
The 2024 plan presented to the Committee in November 2023 maintains focus on the integrity of the risk management and internal control system, providing independent assurance to complement management’s own activities where these are relatively mature, well governed and/or regulated. Areas of focus in 2024 include management of interdependencies between major technology
programmes, control arrangements for data and information usage, storage and transfer and management’s preparedness for fast-evolving legislation.
Following consideration, the Committee confirmed its agreement to the 2024 Internal Audit plan, including the assurance objectives identified. The Committee reviews the results of completed audits and observations from other ongoing assurance and control improvement support, as well as actions taken by management in response to Internal Audit’s work.
The functional effectiveness of Internal Audit is assessed on an ongoing basis and reported to the Committee throughout the year. During 2023, this involved an independent external quality assessment of the function. The Committee reviewed and considered the conclusions of the external assessment, with particular focus on the future methodology and capabilities required for the function, including the use of external expertise.
Governance and compliance
The Committee is also responsible for reviewing the Group’s Code of Conduct and related policies.
During 2024, the Committee will remain focused on the Group’s internal control and risk management environment and approach to financial reporting. In doing so, the Committee will take into account developments in reporting responsibilities, including those relating to changes in the UK Corporate Governance Code and other regulatory requirements.
External Auditor – reappointment of PwC
The Committee reviewed and assessed PwC’s performance during the year and considered its reappointment as the Group’s external Auditor. PwC was originally appointed as the Group’s Auditor in March 2021, following a tender process in 2019. Giles Hannam remained as PwC’s lead audit partner in 2023.
The Committee regularly reviewed and assessed the progress of the audit throughout the year and also undertook a detailed effectiveness assessment through two surveys; one for Committee members and the other for senior management.
The surveys focused on the following areas:
The responses to the surveys were positive and noted in particular that the PwC audit team had developed a clear audit plan that was effectively communicated, demonstrated strong technical expertise and provided constructive challenge.
During 2023, the Committee also agreed with PwC that reporting would be provided against a series of audit quality indicators to support the Committee’s assessment of audit quality. This reporting was provided for the first time in February 2024.
Accordingly, the Committee concluded that the PwC audit team was providing the required quality in its provision of audit services and maintained appropriate levels of independence and objectivity. The Committee therefore recommended the continued appointment of PwC to the Board.
The Group has complied with the requirements of the Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014, which relates to the frequency and governance of tenders for the appointment of the external Auditor and the setting of a policy on the provision of non-audit services.
The Committee reviewed the deferred revenue balance, the valuation approach, the results of the external actuarial review and procedures completed to determine the breakage assumption for outstanding IHG One Rewards points.
The Committee reviewed management’s papers supporting the removal of an adjustment made in recent years that placed more emphasis on pre-Covid-19 redemption behaviours.
The Committee concluded that the deferred revenue balance is appropriately stated.
The Committee met with senior finance management to review and evaluate the risk areas associated with the System Fund.
The Committee reviewed a paper from management summarising the principles determining the allocation of revenues and expenses to the System Fund and the related governance and internal control environment. The Committee concluded that the accounting treatment of the System Fund and related disclosures are appropriate.
Governance Responsible Business Committee Report We focused remain on ensuring strategy on IHG’s people, communities planet underpins and our performance long-term.” Graham Allan Chair of the Responsible Business Committee Highlights Worked together with the Remuneration Committee with respect to the inclusion of ESG metrics in the LTIP. Review of the Group’s strategy, workstreams and metrics in relation to each of the Group’s Journey to Tomorrow pillars. Review and approval of Group policies regarding key ESG areas, including Communities, Environment, Responsible Procurement and Human Rights. Expanded engagement with the Group’s workforce through the Voice of the Employee programme. Key duties and role of the Committee Key objectives and summary of responsibilities The Committee reviews and advises the Board on the Group’s responsible business objectives and strategy, including its impact on the environment and climate change; social, community and human rights issues; its approach to sustainable development and responsible procurement; and stakeholder engagement in relation to the Group’s approach to responsible business. The Committee is also responsible for assessing the Board’s engagement with the workforce and the Group’s DE&I agenda. The Committee’s role, responsibilities and authority delegated to it by the Board are set out in its Terms of Reference (ToR), which are reviewed annually and approved by the Board. The ToR are available at ihgplc.com/investors under Corporate governance. Membership and attendance at meetings The Committee’s membership and attendance at meetings are set out on page 96. The Chair of the Board, CEO, Executive Vice President, Global Corporate Affairs, Chief Sustainability Officer and Deputy Company Secretary attended all meetings held during the year. The General Counsel and Company Secretary attended all but one meeting. Reporting to the Board The Committee Chair updates the Board on all key issues raised at Committee meetings. Papers and minutes for each meeting are also circulated to all Board members, who are invited to request further information where necessary. Effectiveness of the Committee In 2023, the Committee’s effectiveness was reviewed as part of the external Board evaluation process. The Committee concluded that it remains effective and meets its responsibilities well. Focus areas identified include continued assessment of the risks relating to climate change and further engagement with the supply chain. Focus areas and activities Responsible business commitments The Committee’s key responsibilities and focus areas over the year have been: assessing the 2023 strategic priorities that support the Group’s 2030 responsible business commitments and monitoring the progress against them; reviewing the status of the Group’s DE&I targets and the work undertaken by management to drive achievement of the targets, including progress in relation to increasing gender and ethnic diversity within management at both the corporate and hotel level; monitoring the progress of climate risk reporting and the Group’s approach to TCFD reporting disclosures for 2023. Further information on TCFD is included on pages 52 to 59;assessing the progress of, and challenges to, the decarbonisation strategy and workstreams, with particular focus on the integration of ECMs into brand standards for operating hotels, developing new-build hotels that operate with very low carbon emissions and future options for a renewable energy programme, as well as the costs and impact on owners in relation to each; working with the Remuneration Committee to consider current and future ESG metrics included in the LTIP for Executive Directors and senior leaders, involving measures relating to people and the environment; reviewing the Group’s human rights programme and Modern Slavery Statement, with particular focus on identifying and addressing human rights risks specific to the hospitality industry; 112 IHG | Annual Report and Form 20-F 2023
Further information on our 10-year responsible business plan can be found on pages 28 to 35.
During 2024, the Committee will continue to focus on the progress of the Group’s 2030 responsible business commitments and the strategic priorities that support them. The Committee will also focus on developments in the regulatory landscape around ESG matters, particularly in relation to climate and environmental reporting.
Our Responsible Business Report is available at ihgplc.com/responsible-business
Voice of the Employee As IHG’s designated Non-Executive Director (NED) with responsibility for workforce engagement (Voice of the Employee), Duriya Farooqui, supported by the Group’s Global HR team, held a series of employee interface sessions throughout the year to engage directly with members of IHG’s corporate and hotel workforces, with the aim of sharing feedback with the Board for consideration in its decision-making. Role and responsibilities The role and responsibilities of the designated Voice of the Employee NED are to: • support the design of the structure and content of Board discussions on employee engagement and culture; • evaluate employee engagement approaches and their effectiveness; • ensure that employee feedback and interests are factored into the Board’s decisions and KPI setting; • ensure that the Board, through the Executive Committee, has effective methods of receiving feedback from employees and communicating Board and executive decisions and priorities throughout the organisation; • ensure all significant business and budget proposals include a management assessment of the impact on employees; and • ensure executives share employee feedback openly, transparently and in a balanced way, including reviewing employee engagement surveys and other employee reports, including whistleblowing. 2023 engagement Throughout 2023, Duriya, with the participation of several other NEDs and Chair Deanna Oppenheimer, hosted fifteen employee interface meetings to engage with a cross-section of employees and received detailed feedback. These feedback sessions, which were a mix of in person and virtual meetings/forums, included leader groups within the US and UK hotels, reservations and corporate populations, and ERGs across the UK, US, India, China and various EMEAA countries as well as colleagues who have recently joined the organisation. Discussion topics and themes in relation to the feedback received from employees included: workplace culture; leader communications; strategy, prioritisation and collaboration; talent attraction; onboarding and retention; personal and career development; technology and systems; and agile ways of working and decision-making. Additional engagement and activities undertaken by Duriya, the Chair of the Board, and other NEDs during the year included: • monitoring and reviewing the content and feedback from global ‘all employee’ CEO calls; • reviewing employee engagement survey results; • engaging with the Global HR Leadership team to receive broader cultural insights; and • engaging directly with senior leaders at Board and Committee meetings, the Board strategy event and the Group’s senior leaders’ meeting. Insights and learnings Duriya provided regular feedback to the Responsible Business Committee and the Board throughout the year, with key Board discussions taking place around the insights as well as action planning arising from employee engagement survey results. Plans for 2024 Duriya will remain as the Board member with responsibility for workforce engagement in 2024, assisted by additional NEDs. A schedule of discussions and feedback sessions has been arranged for 2024 and will continue to encompass a wide group of employees and leaders from across all regions, including ERGs, Lean In Circles and new starters. The discussion topics will be tailored to specifically focus on those areas that support the strategy. Additionally, the Board will continue to keep the functioning of the Voice of the Employee programme under review to ensure it meets best practice and complies with regulatory developments.
Governance Nomination Committee Report Deanna Oppenheimer Chair of the Nomination Committee Highlights Successful execution of Board succession planning with the new appointments of Elie Maalouf as CEO, Angie Risley as Remuneration Committee Chair Designate and Ron Kalifa as Non-Executive Director, maintaining an appropriate balance of skills and enhancing Board diversity.The Board remains well positioned to provide constructive challenge, strategic guidance and offer appropriate advice to the Group’s management as it looks to deliver on the Group’s refreshed strategy. Oversaw the completion of the external Board and Committee evaluation process. Remained focused on succession planning at the Executive Committee and senior management level. Key duties and role of the Committee Key objectives and summary of responsibilities The Committee reviews the composition of the Board and its Principal Committees, evaluating the balance of skills, experience, independence, knowledge and diversity requirements before making appropriate recommendations to the Board as to any changes. It also ensures plans are in place for orderly succession both for Directors and other senior executives, and is responsible for reviewing the Group’s senior leadership needs. The Committee’s role, responsibilities and authority delegated to it by the Board, including processes in relation to appointments, are set out in its Terms of Reference (ToR), which are reviewed annually and approved by the Board. The ToR state that the Committee is responsible for considering potential candidates for appointment to the Board based on merit, cognitive and personal strengths with due regard for the benefits of diversity, including gender and social, ethnic and geographic backgrounds. The ToR are available at ihgplc.com/investors under Corporate governance. The Committee’s key responsibilities and focus areas during the year have been: • assessing the composition of the Board and the Principal Committees and succession planning, including consideration of gender balance and ethnic and geographical diversity, in accordance with the ToR and consistent with the Group’s Global Diversity, Equity, Inclusion and Equal Opportunities Policy (DE&I Policy); • engaging with external search consultancies and making recommendations on appointments to the Board; • overseeing the external performance evaluation of the Board and its Principal Committees as well as the evaluation of individual Non-Executive Directors; and • monitoring the Executive Committee and senior leadership talent and succession planning. Membership and attendance at meetings The Committee’s membership and attendance at meetings are available on page 96. All members of the Committee are Non-Executive Directors. When the Committee considers matters relating to the Chair of the Nomination Committee position, the Senior Independent Non-Executive Director (SID) acts as Committee Chair. 114 IHG | Annual Report and Form 20-F 2023
Reporting to the Board
The Committee makes recommendations to the Board for all Board appointments. Minutes are circulated to and reviewed by Committee members, and the Committee Chair reports back to the Board on the activities of the Committee following each meeting.
Effectiveness of the Committee and External Evaluation
During 2023, the Committee was reviewed as part of the external Board evaluation process. Details of the external evaluation, including how it was conducted, the nature and extent of the evaluator’s contact with the Board and the actions arising from the evaluation, are set out on pages 104 to 106. The Committee concluded that it remains effective and succeeds at ensuring that the right number and mix of directors with appropriate core skills are brought onto the Board. Succession planning at Executive Committee and senior management level was identified as an area for continued focus.
Executive Director succession planning
An overview of the CFO succession process, following which Michael Glover was appointed as CFO, was included in last year’s Nomination Committee Report on page 113 of the Company’s Annual Report and Form 20-F 2022.
During 2023, the Committee oversaw the CEO succession process and the appointment of Elie Maalouf as CEO.
The Committee explored both internal and external candidates for the CEO role. A desktop review of possible external candidates was conducted by Spencer Stuart; the Chair also met with members of the Executive Committee to assess career aspirations and CEO capabilities. The Committee considered in particular the relative merits of internal and external candidates.
Following the interview process, including a presentation by Elie Maalouf to, and discussion with, all Non-Executive Directors, the Committee concluded that it should recommend to the Board the appointment of Elie as CEO.
The Committee also oversaw induction plans for both Michael and Elie in respect of their new roles. Further details of the induction plans are provided on page 104.
Board and Principal Committee composition and succession planning
The Committee continued to maintain and review throughout the year a Board skills matrix and a Board refreshment schedule, which track the skills, competencies and experiences of the Board members and provide an overview of the Board’s tenure, gender, ethnicity and Committee assignment considerations. These helped to inform future Board appointments and rotations.
Using this resource, and in anticipation of Jo Harlow reaching a nine-year term during the year, the Committee led the process to recruit a new Remuneration Committee Chair.
In addition, the Committee determined that the Board would benefit from recent CEO experience and further expertise in the technology and digital sector. Accordingly, the Committee initiated a search for an additional Non-Executive Director to meet this profile.
Spencer Stuart was engaged in connection with the Remuneration Committee Chair search (as well as the CEO succession) and Heidrick & Struggles was engaged in connection with the other Non-Executive Director search. Neither Spencer Stuart nor Heidrick & Struggles has any other connection with the Company or any individual Directors.
With regard to both searches, desktop reviews were conducted to identify suitable candidates for the roles. Shortlisted candidates met with various members of the Board and management as relevant, with assessments being made on the appropriate competencies, functional experience, cultural characteristics and consideration of candidates’ other commitments in line with the provisions of the UK Corporate Governance Code.
Following completion of an interview process and reference and background checks, the Committee recommended to the Board the appointment of Angie Risley as Non-Executive Director and Chair Designate of the Remuneration Committee, which was approved by the Board with effect from 1 September 2023.
Likewise, following similar completion of an interview process and reference and background checks, the Committee recommended to the Board the appointment of Ron Kalifa as Non-Executive Director, which was approved by the Board with effect from 1 January 2024.
Executive Committee talent and succession
Throughout the year, the Committee also received updates on talent and succession planning at Executive Committee and senior leadership levels, noting in particular progress against DE&I objectives.
Information on the gender and ethnicity balance of the Board and the Executive Committee is included on page 99. Information on the gender and ethnicity balance of senior management is included on page 30.
The Group’s DE&I Policy applies in respect of the Board and its Principal Committees. The DE&I Policy aims to create a diverse culture and support diversity and inclusion. When assessing and considering succession planning at Board and Executive Committee levels, the Committee takes diversity considerations into account consistent with the DE&I Policy. The DE&I Policy aligns to the Group’s responsible business commitments and a description of progress against these commitments is included in the 2023 DE&I Progress Report, available at ihgplc.com/Responsible Business under Reporting.
In 2024, the Committee will continue to ensure that we have appropriate plans in place for orderly succession of appointments to the Board and to senior management, so that an appropriate balance of skills, experience, knowledge and diversity is maintained.
Table of contents
Directors’ Remuneration Report (subject to advisory vote at the 2024 AGM)
116 Remuneration Committee Chair’s statement
119 At a glance
121 Our approach to remuneration
128 Annual Report on Directors’ Remuneration
increase in LTIP quantum for Executive Directors, and which differed by shareholder. The increase in LTIP quantum was thoroughly discussed and explained in the consultations leading up to the approval of the 2023 DR Policy at the 2023 AGM and in our follow up discussions, and was well understood and supported by shareholders, based on the transparent benchmarking of the hotel industry.
In the context of this feedback, and the overall level of support for the DR Policy (at almost 75%), the Committee concluded that the DR Policy changes reflected the supportive views of a significant majority of shareholders, who continue to agree that the commercial rationale for the DR Policy changes is critical to the retention and development of global talent in order to drive the long-term success of the business. Feedback on votes against the DRR indicated that these related either to the use of discretion on the LTIP 2020/22 cash flow outcome or to other shareholder-specific concerns. The Committee considers that the 76.94% voting level demonstrated strong support for their view that the outcome reflected the exceptional performance of the Executive Directors in managing cash flow during the pandemic.
Having met with more shareholders in January 2024, their support of IHG’s continuous need to improve the competitiveness of Executive Director pay was evident. The Board is of the view that further changes to Executive Director pay will need to be considered in order to help protect our Executive Director retention and talent pipeline, which are key for successful future business growth.
The approved DR Policy is available on IHG’s website at ihgplc.com/investors under Corporate governance.
Board changes
The business criticality of attracting and retaining high performing Executive Directors and their succession pipeline has been highlighted in the departures of the Chief Financial Officer & Group Head of Strategy and the Group Chief Executive Officer during 2023. It is vital to IHG’s continued growth that the quality of talent existing in our current Executive Director team is reflected in our internal and external candidates for succession. The vast majority of our competitors are based in the US, therefore the corresponding talent market is US-based. There remains a significant difference between our CEO pay level and that of our US competitors, as well as differences in the structure and mix of incentives, and the Committee will remain focused and will continue to engage with shareholders going forward on how this can be addressed in the context of retaining existing talent and developing and retaining successor talent.
As announced by the Company on 5 May 2023 and the s430(2B) of the Companies Act 2006 declaration released on 28 June 2023, Keith Barr stepped down from the role of CEO, and from the Board, on 30 June 2023. The Committee exercised its discretion to treat Keith Barr as a ‘good leaver’, in accordance with the relevant provisions of applicable incentive and share plan rules. Elie Maalouf succeeded Keith Barr as CEO with effect from 1 July 2023. Elie was already a member of IHG’s Board and had been leading IHG’s Americas business as regional CEO for eight years.
Historically, our succession strategy has generally been to grow executive level successors within the business, particularly in the US. Whilst we remain focused on maintaining our ability to secure a strong executive level internal succession pipeline, this has become more challenging in recent years as those potential successors move to positions outside IHG offering more attractive packages at their level and above, both in terms of structure (for example, restricted stock units) and quantum. The ability to attract Elie Maalouf into the role of CEO has enabled us to secure a leader with significant US market experience and who continues to maintain key government and industry relationships in the US, as well as having an in-depth global knowledge of IHG. We are committed to ensuring that there remains a robust succession plan in place at executive level.
We shared remuneration details for Elie Maalouf upon his appointment in a voluntary published statement in July 2023, as well as in discussions with shareholders in October 2023. In our AGM follow-up meetings, strong support was expressed by shareholders regarding the way in which succession planning had been conducted, as well as for the pay arrangements for Elie, with recognition of the competitive challenges we face operating across UK and US markets, where pay structures vary substantially.
Elie’s annual base salary of £990,000 represents a 7% increase on that of his predecessor; the outgoing CEO Keith Barr would have received an estimated 4% increase to his salary in April 2024, reducing the difference to 2.9%. Furthermore, Elie will not be subject to a salary review until April 2025. We estimate that Elie’s full year CEO single total figure of remuneration will not exceed that of Keith Barr’s until 2025. Elie’s remuneration remains proportionate in the context of both the international hotel peer company and FTSE 100, and follows our strategy of growing successor talent in-house. The Board is fully supportive of the salary positioning in this context. External US recruitment would have involved a more significant pay increase and an externally recruited CEO, who would have not yet been tested in the IHG environment, would have represented a greater risk with less proven value. Full details of the remuneration arrangements for Elie Maalouf’s changes are in line with the approved DR Policy and can be found on page 126.
As reported in the 2022 Directors’ Remuneration Report, Paul Edgecliffe-Johnson stepped down from the role of Chief Financial Officer & Group Head of Strategy, and from the Board, and left IHG on 19 March 2023. Michael Glover succeeded Paul as Chief Financial Officer (CFO), effective 20 March 2023. We were delighted to be able to appoint someone with Michael’s expertise and experience. He has held several roles in his 18 years at IHG, including CFO of IHG’s China region, Group Financial Controller, and his most recent role as CFO Americas with group-wide responsibility for commercial finance operations.
Jill McDonald and Ian Dyson both stepped down from the Board as Non-Executive Directors on 28 February 2023. Subsequently, Graham Allan was appointed Chair of the Responsible Business Committee and Byron Grote was appointed Chair of the Audit Committee; both appointments took effect on 1 March 2023. I was appointed to the Board with effect from 1 September 2023, with membership of the Remuneration and Responsible Business Committees from that date, and assumed the Remuneration Committee Chair role on 1 January 2024. Sir Ron Kalifa joined the Board, with effect from 1 January 2024, becoming a member of the Remuneration and Audit Committees. The remuneration arrangements in respect of all changes were in line with the approved DR Policy and are covered on pages 126 and 127.
Wider workforce remuneration and employee engagement
The Committee is extremely mindful of ongoing inflationary pressures across many of our markets and its impact on the financial and emotional wellbeing of our employees. In 2023, salary increases for the UK and US corporate populations were above that for the CEO in role at the time. The overall average budget for 2024 increases is 4% for our global corporate workforce, with total budgets in the UK and the US being 4.2% and 3.6% respectively. The CEO is not eligible to receive a merit increase for 2024 following his appointment in July 2023, as explained above. We have also made an additional 15% available to the budgeted amount for the personal performance element of our 2023 Annual Performance Plan to increase bonus amounts for our strongest performers.
For the UK leased hotel estate, in agreement with the owner, budgeted 2023 salary increases ranged from 5% to 8%, with higher increases applicable for frontline employees, and one-off payments made to employees in 2023 for those who had worked for at least the final three months of 2022. Budgeted 2024 salary increases range from 3% to 13% with higher increases applicable for frontline employees.
Directors’ Remuneration Report continued
Remuneration Committee Chair’s statement
The Real Living Wage will be applied for 12 months from April 2024, as a minimum for all staff, in line with the Real Living Wage Foundation level, and zero-hour contracts are not utilised in the UK leased estate.
In 2023, we also introduced a salary sacrifice electric car scheme for UK corporate colleagues, enhanced maternity and paternity pay for our UK managed hotels, and partnered with Busy Bees to provide both our UK corporate colleagues and our UK managed hotels a 20% discount on childcare fees. Further details of our approach to remuneration across the wider workforce, in general and throughout the year, are outlined on pages 123 to 124.
We were pleased to see overall employee engagement scores remain resilient at 87%, exceeding external benchmarks by 10%. Perceptions of pay also remained strong, exceeding external benchmarks across our hotel, reservations and general manager populations (see page 124). It is also pleasing to see that we have reduced our Gender Pay gap in the UK by 16% since 2017. I look forward to participating in some employee engagement sessions during 2024, as noted on page 127, and hearing views about remuneration more generally.
Implementation of Directors’ Remuneration Policy in 2024
As covered in more detail on pages 138 to 140:
With regards to salary increases for Executive Directors, as mentioned above, the CEO will not receive an increase in 2024; the CFO will receive an increase in line with that of the global corporate workforce following an assessment of 2023 performance.
The non-financial measures for the 2024 Annual Performance Plan will remain as room openings and room signings, aligned to our key strategic objectives for our future growth priorities, and the financial measure will remain as operating profit from reportable segments, as in 2023.
LTIP 2024/26 cycle measures will remain as relative TSR, relative net system size growth, absolute cash flow, adjusted earnings per share and ESG. Retaining the same balance of measures for the 2024/26 cycle maintains an overall business performance focus.
The TSR comparator group has been expanded from 8 to 15 global hotel companies. Details of the new TSR comparator group can be found on pages 138 and 140.
New ESG metrics have been implemented, with environmental metrics based on Energy Conservation Measures (ECMs) and hotels that operate at low/zero carbon, as key areas in management control that support delivery of our carbon and energy goals. New People measures build on our 2023/25 LTIP representation targets. The new measures focus on quantitative targets in relation to driving greater inclusion and growing our next generation of hotel general managers from our talent pipelines. The Committee considers this innovative approach to People measures to be relevant and appropriate for the Company and fully aligned to our priorities in this area. See pages 139 and 140 for more details.
Retirement benefits for incumbent UK Executive Directors will continue to align with the maximum company contribution available to all other participants in the UK Pension plan.
About this report
As always, we strive to make this report as easy to read as possible. Following this statement, there is a reminder of the approved DR Policy applicable in 2023 and its alignment with the UK Corporate Governance Code principles. There is an ‘At a glance’ section on pages 119 to 120 providing an illustration of 2023 remuneration outcomes and, over the following pages, there is a summary of how executive remuneration aligns to Company strategy; a summary of remuneration across the wider workforce; and, on pages 125 to 127, further background on the Remuneration Committee.
This Directors’ Remuneration Report (pages 116 to 140) will be put to an advisory vote by shareholders at the May 2024 Annual General Meeting.
Chair of the Remuneration Committee
Position
Member since
attended
Remuneration Committee Chair (effective 1 January 2024)
1 September 2023
Remuneration Committee Chair (1 October 2017 to 31 December 2023)
1 September 2014
1 January 2023
Senior Independent Non-Executive Director
1 September 2020 to 1 March 2023
Non-Executive Director
1 March 2021
Audit Committee Chair (until 28 February 2023)
1 September 2013 to 28 February 2023
Audit Committee Chair (effective 1 March 2023)
1 July 2022
Graham Allan stood down from the Remuneration Committee from 1 March 2023 when he became Chair of the Responsible Business Committee.
Ian Dyson retired from the Board on 28 February 2023. He did not attend one Remuneration Committee meeting that took place on 27 February 2023, one day prior to his retirement.
Certain KPIs and Non-GAAP measures are used throughout the Directors’ Remuneration Report. See pages 84 to 88 for additional detail.
Use of Non-GAAP measures: in addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional financial measures (described as Non-GAAP) are presented that are used internally by management as key measures to assess performance. Non-GAAP measures are either not defined under IFRS or are adjusted IFRS figures. Further explanation in relation to these measures can be found on pages 84 to 88 and reconciliations to IFRS figures, where they have been adjusted, are on pages 226 to 228.
At a glance
Within the Directors’ Remuneration
Report, we have used colour coding
to denote different elements of
remuneration. The colours used and
the corresponding remuneration
elements are:
Benefits
Pension benefit
Annual Performance Plan (APP)
50% cash and 50% deferred shares
Long Term Incentive Plan (LTIP)
Shareholding
Audited information
Content contained within a tinted panel highlighted with an ‘Audited’ tab indicates that all the information within the panel is audited.
Over the following pages of the report, we give an overview of how our remuneration arrangements are aligned to our purpose, ambition and strategic priorities. We have included a summary of our approved DR Policy on page 121, together with a reminder of how the Committee has addressed Provision 40 of the 2018 UK Corporate Governance Code in respect of remuneration policy and practice throughout 2023. Alignment of pay structures throughout the organisation and the implementation of remuneration policy across the wider workforce is covered on pages 123 to 124. Pages 125 to 127 contain a summary of Committee actions during the year.
Executive Director remuneration
2023 actual remuneration vs potential remuneration
The charts below show the 2023 potential remuneration opportunity and actual achievement compared to the 2022 actual achievement. The relevant figures for each of the elements that make up the single total figure of remuneration, as shown below for the Executive Directors, can be found in the table on page 128. See above for the key to individual elements of actual remuneration for 2022 and 2023.
For the purpose of reading the charts below, please note the following:
Elie Maalouf’s 2023 figures are a combined total based on his CEO, Americas role for the 1 January to 30 June period and Group CEO role for the 1 July to 31 December period.
For Michael Glover, we have not shown 2022 figures as he was promoted to the Board on 20 March 2023 and was not an Executive Director for the 2022 period. His 2023 figures are based on fixed pay and APP for the period 20 March to 31 December and LTIP for the full 2021/23 cycle.
The one-off relocation payments made to Elie Maalouf and Michael Glover in 2023 have been included within their benefits figure for the purpose of the charts below. The respective amounts have been disclosed in the Other column of the single total figure table on page 128.
For both Keith Barr and Paul Edgecliffe-Johnson, their 2023 actual and potential figures are based on the period in which they were Executive Directors only (1 January-30 June 2023 for Keith Barr; and 1 January-19 March 2023 for Paul Edgecliffe-Johnson).
Key for potential
Minimum = Fixed pay
Target = Fixed pay and on-target award for APP (115%) and 50% of maximum LTIP vesting
Maximum = Fixed pay and maximum award for APP and LTIP
Elie Maalouf, Chief Executive Oicer Value (£000) Keith Barr, Former Chief Executive O icer Value (£000) Michael Glover, Chief Financial O icer Value (£000) Paul Edgecli_e-Johnson, Former Chief Financial O icer Value (£000)
At a glance continued
How we performed in 2023
The Company delivered another year of strong performance against target in operating profit from reportable segments. Room openings were below target this year and room signings narrowly missed target, by less than one percent, however, both these measures achieved well above threshold performance. In the round, this meant the formulaic 2023 APP achievement was 142.2% of target, resulting in awards for Executive Directors of 163.5% of salary (81.8% of the capped maximum award). Under the LTIP, improved TSR performance against comparators resulted in the vesting of this element for the first time since 2020. This, combined with a solid net system size growth performance relative to our largest competitors and an exceptional management of cash flow, resulted in a formulaic outcome of 57.8% of maximum. Further details on the actual achievement for operating profit from reportable segments and absolute cash flow can be found on pages 128 and 129.
Our approach to remuneration
Summary of approved Directors’ Remuneration Policy (DR Policy)
The Committee has considered the remuneration policy and practices in the context of Provision 40 of the UK Corporate Governance Code:
Through the combination of short- and long-term incentive plan measures, the DR Policy is structured to support financial objectives and the strategic priorities of the business that deliver shareholder returns and long-term value creation. Further alignment with shareholder interests is driven by the significant proportion of share-based incentives and Executive Director shareholding requirements. Our reward policies are aligned throughout the organisation and include a proportion of performance-related reward, driving engagement for the whole of the workforce. We always seek to report our DR Policy and performance-related remuneration measures, targets and outcomes in a clear, transparent and balanced way, with relevant and timely communication with all of our stakeholders, including shareholders.
Our remuneration structure comprises straightforward and well-understood components. The purpose, structure and strategic alignment of each element is clearly laid out in the remuneration policy summary table:
• fixed pay: base salary, pension and benefits that are consistent with role and location and are designed to attract and retain talent;
• short-term incentive: annual performance-related bonus which incentivises and rewards the delivery of financial and non-financial strategic objectives. For senior employees, a proportion of this bonus is paid in cash and the remainder deferred in shares for a period of at least three years; and
• long-term incentive: a share-based award which incentivises performance over a three-year period based on measures that drive long-term sustainable growth and value creation.
Directors’ Remuneration Report
Our approach to remuneration continued
The range of possible values of rewards for Executive Directors is clearly disclosed in graphical form both at the time of approving the policy and in the annual implementation report.
• the maximum short- and long-term incentive awards are capped as a % of salary;
• the Committee has clear discretion policies, linked to specific measures where necessary, to override formulaic outcomes;
• Executive Directors agree to clear and comprehensive malus and clawback provisions; and
• significant shareholding requirements apply for Executive Directors, including the deferral of 30% to 50% of bonus in shares; a two-year post-vest holding period for LTIP shares and minimum shareholding requirements both during and after employment.
Individual rewards are aligned to the delivery of strategic business objectives. The Committee sets robust and stretching targets to ensure that there is a clear link between the performance of the Group and the awards made to Executive Directors and others.
IHG has a clear purpose and well-established values and behaviours. The alignment between remuneration incentives and our strategy for relentless focus on growth, and the KPIs that underpin the delivery of our strategy, is outlined below. Other elements of reward, such as salary reviews and, across the wider workforce, the short-term incentive plan and our global recognition scheme, reward employees for performance and actions that demonstrate our values and behaviours.
Aligning variable elements of remuneration to strategy
Variable elements of remuneration are linked to our strategy, as shown below, in respect of the 2023 APP and 2023/25 LTIP cycle granted in 2023.
• The strength and breadth of our portfolio, tailored services and solutions, as well as our technology and platforms drive consumer preference, owner returns and rooms growth; all contributing to our revenues and profit.
• Openings and signings are two of our key drivers of system size and central to our strategy of accelerating the growth of our brands in high-value markets.
• Performance on Global Metrics, including key ESG measures (Employee Engagement, Guest Love, Responsible Business), will be reviewed in considering the potential application of discretion to formulaic outcomes on APP strategic objective measures.
• Our strategy is intended to deliver unmatched guest experiences and unrivalled owner returns for our stakeholders, including competitive total shareholder returns.
• Our strategy is to accelerate the growth of our brands in high-value markets by using our global scale and expertise so it is important that this forms a key element of our management team’s Long Term Incentive Plan.
• Enhancing our customer and owner offer and accelerating the growth of our brands in high-value markets drives sustained growth in cash flows and profits over the long term, which can be reinvested in our business and returned to shareholders.
Environmental, social
and governance (20%)
• Aligned to our people, communities, and planet strategy, new ESG measures (decarbonisation, and diversity, equity and inclusion) are included in our LTIP targets.
• EPS provides a measure of the efficiency of the capital structure, as well as promoting further alignment with shareholder experience and value.
Remuneration at IHG – the wider context
Our reward philosophy
Our reward arrangements are competitive, drive creation of value for stakeholders and make us think and act as one team.
How our reward practices are aligned across all levels of the organisation
Our approach to fairness in reward is an important aspect of our overall reward philosophy and is designed to attract, retain, motivate and engage top talent. It is supported by a robust governance approach that ensures our reward and recognition practices are fair and consistent across our employee and colleague population, regardless of gender and other aspects of diversity, as well as an alignment between the wider direct workforce and executive remuneration. We regularly review our approach externally, ensuring we are competitive in the different markets in which we operate and meet the needs of employees by offering market-driven reward packages.
Examples of alignment and implementation of wider workforce reward strategy in 2023
Fixed
In the 2023 base salary review process, we continued to put our managers at the heart of the process, allowing them to use their discretion in pay decisions. We also included an additional 25% on top of the standard merit budget in order to address equity and recognise talent. With continuous improvements on our external benchmarking capability, we provided additional line manager support with market data analysis and guidance so that the budget could be targeted in areas where it would have the most impact. Our managers are reminded of our diversity, equity and inclusion statement on making fair reward decisions consistent with our Code of Conduct to ensure all employees are rewarded fairly and according to their contribution, skills and experience, with tips on avoiding any conscious and unconscious bias. For 2024, an additional merit budget will again be made available to address individual equity and talent recognition.
In 2023, we introduced an electric car salary sacrifice scheme allowing UK corporate colleagues to obtain an electric car and receive both tax and national insurance savings, whilst at the same time supporting our Journey to Tomorrow environmental commitments. So far, 5.8% of those eligible for the scheme have ordered vehicles to date, which is 16.8% of those who have registered interest in the scheme. We also understand the demands faced by working parents and carers when it comes to balancing their work and home life, so we partnered with Busy Bees to provide our UK corporate colleagues, along with our UK managed hotels, a 20% discount on childcare fees. A key element of our employer brand and beloved colleague benefits is our Employee Room Rate programme, which enables employees to book hotels across many of our brands at a reduced rate. This year, we enabled colleagues to earn IHG One Reward points on Employee Rate stays, and are working on additional enhancements to the programme in the future. The levels of healthcare cover on offer in the UK continued to align across all UK corporate colleagues.
Pension and retirement benefits are provided in the UK and US in line with market practice.
UK: the contribution rate for corporate and eligible hotel employees in the IHG UK pension plan is aligned across the eligible population with a 2:1 matching ratio up to a maximum of 6% of salary from employees and 12% from the Company.
US: US retirement saving plans are made up of a 401(k) plan which has a 1:1 matching contribution ratio up to a maximum of 6% of salary for eligible corporate employees and a Deferred Compensation Plan (DCP) that provides for supplementary company contributions of up to 16% provided at senior levels (a historic grandfathered rate of 20% applies for a small number of employees who were already receiving this rate when it was removed effective 1 January 2017).
All corporate employees share the same corporate performance metrics with the Executive Committee and Executive Directors. For senior management (generally at Executive Committee (EC) level and their direct reports), a proportion of bonus is deferred into shares for a three-year period. The weightings of metrics for all corporate employees below EC level are aligned and a greater portion of an award can be achieved through an employee’s individual performance and contribution to the Company. In addition, in view of the strong performance in 2023, approximately 15% is being added to the amount budgeted for the personal performance element to increase awards for those employees who performed the strongest during 2023.
Senior/mid-management and certain specialist roles are eligible to participate in a Long Term Incentive Plan (LTIP). Performance-based LTIP awards largely apply at the level of Executive Committee and their direct reports; Restricted Stock Units typically apply for eligible employees below this level (see below). In 2023, at the same time as levels for Executive Directors were increased under the new DR Policy, LTIP levels for senior management were adjusted for market competitiveness and to better facilitate internal progression and relieve compression.
In line with typical market practice, particularly in the US, and due to line-of-sight over performance measures, a gradually greater proportion of the LTIP award is made as RSUs (which are not subject to performance conditions but still align employee interests with those of shareholders) for eligible roles from Executive Committee level down.
∎ Recognition
schemes
Employee engagement on pay
We have several forums available for employees to share their thoughts, including employee resource groups (ERGs), a designated Non-Executive Director for workforce engagement and our employee engagement survey, known as Colleague HeartBeat, which allows employees to express their views on key aspects of working at IHG. As the charts below show, the 2023 employee engagement scores for participating hotel and reservations employees and general managers on the questions relating to reward and recognition exceeded our survey provider’s top quartile benchmark.
Wellbeing
We have continued to promote myWellbeing – a framework to support employees across their health, lifestyle and workplace. The myWellbeing suite of resources, which includes an employee Wellbeing Handbook and guidelines for people managers, has been designed to provide a holistic wellbeing offering. Employees also have access to a global Employee Assistance Programme, which offers counselling, practical guidance on topics such as legal, financial and work matters, and additional health and wellbeing resources.
In the UK, we introduced a network of Mental Health First Aiders. This is part of our commitment to ensure the right support is in place to help everyone feel at their best and forms part of our approach to make mental health support more accessible and further unlock the stigma. We trained a small number of people in 2023, with the potential to roll out more widely at IHG across other markets, including our UK managed hotel estate. We increased our focus on financial education, providing our UK corporate colleagues with free expert information and guidance to stay on track to achieve both financial goals and objectives and to support them on their personal financial journeys by offering group webinar sessions and wellbeing articles.
We have also continued to champion initiatives such as Focused Fridays, where we limit meetings, and Recharge Days, where corporate colleagues can spend the day doing whatever they need to unwind. In 2023, all corporate colleagues were given three recharge days to spend as they please, on top of any contracted annual leave they are eligible to receive. These initiatives have helped us achieve a 3% increase in our Wellbeing Index scores for all of our colleagues, and a 2% increase to 89% for our hotel colleagues on last year’s scores.
UK leased hotel employees
As previously reported, following the acquisition of a number of UK hotels in 2019, employing entities for the estate’s hotels were transferred to IHG. Employment terms, including remuneration and benefits, largely remained in place on their pre-acquisition basis. As with the model for leased hotels generally, IHG provides hotel management support to the owners of these UK leased hotels and makes recommendations on matters, including pay, based on market insight and experience. Decisions on implementing pay changes are ultimately determined by the hotel estate owner in the context of their own commercial position and equities across the wider portfolio.
One of our 2030 commitments is to drive gender balance and a doubling of under-represented groups across our leadership, and we are building on the significant progress we have made over the past decade towards achieving gender balance, with 35% of our leaders (VP and above) being female (vs. an ambition of 39% by 2025), and a gender-balanced employee population, of which 52% is female. We are delighted to be recognised by Forbes as one of the world’s top companies for women, and we were rated second on the Financial Times Diversity Leaders in 2024. We have reduced our Gender Pay gap in the UK by 16% since 2017, our first year of reporting.
Remuneration Committee details
2023 focus areas Review and approval of 2022 remuneration outcomes and 2023 incentive plan structures and targets. In-year performance and relative performance tracking. Wider workforce remuneration matters. ESG in incentives. Review, approval and implementation of the 2023 DR Policy. Review, approval and implementation of the Deferred Award Plan (DAP) rules. Shareholder engagement prior to, and following, the AGM vote. CEO remuneration package.
Key objectives and summary of responsibilities
The Remuneration Committee agrees, on behalf of the Board, all aspects of remuneration for the Executive Directors, the Executive Committee and the Chair of the Board, and also agrees the strategy, direction and policy for the remuneration of the senior executives who have a significant influence over the Group’s ability to meet its strategic objectives. Additionally, the Committee reviews wider workforce pay policies and practice to ensure alignment with strategy, values and behaviours and takes this into account when setting Executive Director remuneration. The Committee’s role and responsibilities are set out in its Terms of Reference (ToR), which are reviewed annually and approved by the Board.
Membership and attendance at meetings
Details of the Committee membership and meeting attendance are set out on pages 96 and 118.
During 2023, the Committee was supported internally by the Company Chair, the Group’s CEO and CFO, and the heads of Human Resources and Reward as necessary. All attend by invitation to provide further background information and context to assist the Committee in its duties. They are not present for any discussions that relate directly to their own remuneration or where their attendance would not be appropriate.
The Committee Chair updates the Board on all key issues raised at Committee meetings. Papers and minutes for each meeting are also circulated to all Board members for review and comment.
Non-Executive Directors’ letters of appointment and notice periods
Non-Executive Directors have letters of appointment, which are available upon request from the Company Secretary’s office.
Deanna Oppenheimer, Non-Executive Chair, is subject to 12 months’ notice and is in compliance with Provision 19 of the UK Corporate Governance Code. No other Non-Executive Directors are subject to notice periods; all Non-Executive Directors are subject to an annual re-election by shareholders at the AGM.
Effectiveness of the Committee
The effectiveness of the Committee is monitored and assessed regularly by the Chair of the Committee and the Chair of the Board.
Remuneration advisers
IHG appointed Deloitte LLP to act as independent adviser to the Committee in 2019 following a competitive tender process undertaken by the Committee. Deloitte is a member of the Remuneration Consultants Group and, as such, operates under the code of conduct in relation to executive remuneration consulting in the UK.
Fees of £159,400 were paid to Deloitte in respect of advice provided to the Committee in 2023, which included significant input into the review and implementation of the DR Policy during the year. This was in the form of an agreed fee for support in the preparation of papers and attendance at meetings, with work on additional items charged at hourly rates. The terms of engagement for Deloitte are available from the Company Secretary’s office upon request. Separately, other parts of Deloitte LLP also advised the Company in relation to corporation tax, mobility and consulting services. The Committee is satisfied that the advice received is objective and independent.
Approach to target setting
Targets are set by the Committee and senior management, taking into account IHG’s growth ambitions and long-range business plan, market expectations and the circumstances and relative performance at the time, to set stretching achievement targets for senior executives that will reflect successful outcomes for the business based on its strategic and financial objectives for the period.
Absolute targets may be set relative to budget and/or by reference to prior results, generally containing a performance range with additional stretch to incentivise outperformance and minimum performance levels for payout. Relative targets are set against an appropriate comparator group of companies for the relevant measure, for example, relative NSSG in the LTIP was set against our six largest competitors with over 500k rooms to reflect our strategy of accelerating the growth of our brands in high-value markets.
Performance will be reviewed throughout the period in which it is applicable for, and, if any corrections are required, this will be disclosed in the Directors’ Remuneration Report for the year in which the correction has been agreed. Details on a correction for the 2023/25 LTIP calculation can be found on page 132.
Shareholder engagement
The Chair of the Committee engaged extensively with shareholders during 2023 in respect of the DR Policy, both in advance of the AGM and following the vote of less than 80% support at the AGM, in order to understand the range of views held by shareholders and to take these into account when setting and implementing the policy as well as outline the rationale for the changes made.
At the October 2023 meetings, in addition to follow-up comments on the 2023 DRR and DR Policy, Angie Risley was introduced to shareholders as the Committee Chair designate, effective 1 January 2024, and new CEO pay arrangements were discussed for Elie Maalouf, following his appointment to the role. In January 2024, shortly after Angie commenced her role as Committee Chair, she held meetings with shareholders for more comprehensive two-way introductions and discussions about current IHG-specific remuneration challenges and shareholder views and expectations. Further information on shareholder engagement is contained in the Chair’s Statement on pages 116 to 118.
During the year, Byron Grote and Graham Allan replaced Ian Dyson and Jill McDonald as Chair of the Audit Committee and Chair of the Responsible Business Committee with effect from 1 March 2023 after Ian and Jill retired from the Board. Jo Harlow also stepped down from the Board and as Chair of the Remuneration Committee at the end of 2023. Angie Risley was appointed as a Non-Executive Director prior to assuming the Chair of the Remuneration Committee role effective 1 January 2024 and Sir Ron Kalifa was appointed to the Board from 1 January 2024. The remuneration arrangements in respect of all changes were in line with the approved DR Policy.
As announced by the Company on 5 May 2023 and the s430(2B) of the Companies Act 2006 declaration released on 28 June 2023, Keith Barr stepped down from the role of Chief Executive Officer, and from the Board, on 30 June 2023. Elie Maalouf succeeded Keith Barr as Group CEO with effect from 1 July 2023, Elie was already a member of IHG’s Board in leading IHG’s Americas business as regional CEO.
Paul Edgecliffe-Johnson stepped down from the role of Chief Financial Officer & Group Head of Strategy, and from the Board, leaving IHG on 19 March 2023. Michael Glover succeeded Paul as Chief Financial Officer with effect from 20 March 2023.
Details of the arrangements for all Executive Directors are as follows:
Salary, pension and benefits
Elie relocated from the CEO, Americas role based out of the Atlanta office to the Group CEO role, which is primarily based out of the UK office. On appointment, and in line with how we treat other international moves, Elie received a one-off net cash payment of £50,000 towards costs associated with setting up a UK base. The grossed up value of this payment has been disclosed in the single total figure of remuneration table on page 128.
To facilitate Elie to carry out his UK-based role while maintaining his US home and IHG’s significant business, government and industry interests in the US, he also receives a net amount of £10,000 per month towards UK housing costs. The actual net cost per month on housing for 2023 was, on average, lower than this but will be adjusted to allow for rental market dynamics over the longer term.
Minimum Shareholding Policy
As outlined on pages 123 to 124, IHG operates an aligned approach to remuneration throughout the organisation. During the year, the Committee reviewed aspects of the Company’s wider workforce remuneration approach as part of its regular meeting agenda.
The Company engaged with the workforce through its employee engagement survey, which covers a number of areas, including pay and benefits competitiveness, wellness and inclusion. Our overall employee engagement increased to 87% (+1% on 2022), placing IHG as a Global Best Employer by Kincentric. As noted on page 124, perceptions of reward and recognition gained strong results across our hotel, reservations and general manager populations.
During 2023, the Chair of the Committee joined IHG’s designated Non-Executive Director responsible for workforce engagement in a Voice of the Employee session. These sessions are held throughout the year to engage directly with members of IHG’s corporate and hotel workforce, with the aim of collating and sharing such feedback with the Board for consideration in its decision-making. No concerns were raised regarding Executive Director remuneration or how it aligns with the wider IHG remuneration principles. Further details about the 2023 Voice of the Employee engagement sessions can be found on page 113. Further sessions are planned for 2024 for Angie to attend as the new Chair of the Committee.
Deferred Award Plan rules
In 2023, the new DAP rules were approved by shareholders at the May AGM. The DAP replaced both the previous APP and LTIP rules as a simplified, combined set of plan rules to govern the share awards made under the Company’s discretionary incentive arrangements.
The rules for both the APP and LTIP were due to expire in 2024, and the Committee considered it appropriate to renew them a year early to coincide with the adoption of the new DR Policy. Following approval at the 2023 AGM, LTIP share awards were granted under the DAP with effect from the 2023/25 cycle, and future APP share awards will be granted under the DAP with effect from the 2024 plan year. All awards granted under previous cycles will remain subject to the APP and LTIP rules that were previously in place.
Service contracts and notice periods for Executive Directors
The Committee’s policy is for all Executive Directors to have service contracts with a notice period of 12 months from the Company and a notice period of 6 months for the employee, unless, on an exceptional basis to complete an external recruitment successfully, a longer initial notice period reducing to 12 months is used. This is in accordance with the UK Corporate Governance Code.
All Executive Directors’ appointments and subsequent re-appointments to the Board are subject to election and annual re-election by shareholders at the AGM.
Details of current Executive Directors’ contracts (available upon request from the Company Secretary’s office):
Date of original
appointment to the Board
Voting at the Company’s AGM
The 2022 Directors’ Remuneration Report and the new DR Policy were approved at the 2023 AGM. Further details regarding the action taken by the Committee in response to the level of support received for these resolutions can be found in the Chair’s Statement on pages 116 to 118.
The outcome of the votes in respect of the DR Policy and Report for 2023 are shown below:
AGM
Annual Report on Directors’ Remuneration
The Annual Report on Directors’ Remuneration explains how the Directors’ Remuneration Policy (DR Policy) was implemented in 2023 and the resulting payments each of the Executive Directors received.
The Directors’ Remuneration Report is subject to an advisory vote by shareholders at the 2024 AGM. The notes to the single total figure table provide further detail, where relevant, for each of the elements that make up the total single figure of remuneration for each of the Executive Directors.
Single total figure of remuneration – Executive Directors
Executive Directors
LTIP figures for 2022 relate to the 2020/22 LTIP cycle and have been restated using actual share price on date of vesting. Figures for 2023 relate to the value of shares for the 2021/23 cycle.
Elie Maalouf’s 2023 figure combines his CEO, Americas role for the period 1 January to 30 June, and his Group CEO role for the period 1 July to 31 December. Elie was paid in USD for his CEO, Americas role and the sterling equivalent is calculated using an exchange rate of $1 = £0.80 in 2023 and $1 = £0.81 in 2022 (page 173). In line with 2023, the 2022 benefits figure has been restated to reduce the residual value of UK tax paid in respect of UK duties while a US Director from £7k to nil due to subsequent foreign tax credit offsetting.
Michael Glover’s 2023 fixed pay elements relate to the period 20 March to 31 December 2023. His APP has been pro-rated for the period in which he was Executive Director and his LTIP award, inclusive of Restricted Stock Units, is for the full 2021/23 LTIP cycle. His LTIP and RSU 2021/23 awards were granted in May 2021 prior to becoming an Executive Director, the same performance conditions applied to the LTIP award as they did for the Executive Directors; the RSU awards were not subject to any performance conditions. No 2022 data has been provided because he was not in an Executive Director role at the time.
Keith Barr stepped down from the CEO role on 30 June 2023 so 2023 figures related to the period 1 January to 30 June 2023, with the exception of his LTIP 2021/23 which the full cycle value has been disclosed. Further details on the treatment of his remuneration on leaving IHG can be found on page 126.
Paul Edgecliffe-Johnson left the Company on 19 March 2023 and his fixed pay elements were paid up to this date. He was not eligible to receive an APP award for 2023 and his LTIP 2021/23 award was forfeited upon leaving IHG. Further details on the treatment of his remuneration on leaving IHG can be found on page 127.
Details of the ‘Other’ payments for Elie Maalouf and Michael Glover can be found in the notes to the single total figure table section below.
Notes to the single total figure table
Fixed pay
Salary: salary paid for the year. Salary increases in 2023 were lower than the budget for the wider UK and US corporate workforce. See pages 126 to 127 for information on Executive Director changes during 2023.
Benefits: for Executive Directors, this includes, but is not limited to, taxable benefits such as company car or allowance and healthcare.
As disclosed on page 126, to facilitate Elie Maalouf to carry out his UK-based role whilst maintaining his US home and IHG’s significant business, government and industry interests in the US, he also receives a net amount of £10,000 per month towards UK housing costs. The 2023 benefits figure for Elie also includes travel and accommodation costs in relation to his relocation.
Pension benefit: for current Executive Directors, in line with the DR Policy, includes the value of IHG contributions and any cash allowances paid in lieu of pension contributions.
Elie Maalouf and Michael Glover both relocated to the UK for their Group CEO and Group CFO roles; they did not participate in the IHG UK pension plan in 2023 and instead received cash allowances of 12% of salary. Keith Barr and Paul Edgecliffe-Johnson also did not participate in any IHG pension plan in 2023 for their respective periods of employment and instead received cash allowances of 12% of base salary. This is in line with the maximum level available to all other participants in the UK pension plan.
Life assurance cover for all Executive Directors was provided at four times base salary.
Elie Maalouf participated in the US 401(k) Plan and the US Deferred Compensation Plan (DCP) for the period 1 January to 30 June 2023 whilst in his role as CEO, Americas. The US 401(k) Plan is a tax-qualified plan providing benefits on a defined contribution basis, with the member and company both contributing.
Contributions made by, and in respect of, Elie Maalouf in these plans for the year ended 31 December 2023 were:
Sterling values have been calculated using an exchange rate of $1 = £0.80.
As outlined in last year’s report, Elie’s retirement benefits were in line with other senior US employees and comprised of a 6% of salary matched contribution (subject to IRS limits in respect of 401(k) contributions) and a 16% of salary supplemental employer DCP contribution.
Other
Elie Maalouf received a net payment of £50,000 in July 2023 to cover the transitional and transactional costs of setting up a UK base. The value of this one-off payment has been grossed up for disclosure in the single total figure of remuneration table above.
Michael Glover received a gross payment of £150,000 to cover relocation and associated costs.
AUDITED
Variable pay
APP (50% cash and 50% deferred shares)
Operation
Disclosed award levels are determined based on salary as at 31 December 2023, other than for Elie Maalouf whose award was pro-rated based on his respective salaries and periods as CEO, Americas and Group CEO, and on a straight-line basis between threshold and target, and target and maximum, and are based on achievement vs target under each measure:
The Committee formally reviews performance against IHG’s Global Metrics as part of the APP structure in considering whether to apply discretion to adjust outcomes on the strategic measures. Any application of discretion to the APP outcome, would be disclosed in the relevant year’s Directors’ Remuneration Report.
For Executive Directors, 50% of the 2023 APP award will be made in the form of shares deferred for three years, subject to continued employment.
APP outcome for 2023
The performance measures for the 2023 APP were determined in accordance with the DR Policy and were:
Target award was 115% of salary and maximum was up to 200% of target for each measure, subject to an overall cap on the award of 200% of salary. The following chart and table shows threshold, target and maximum opportunity, as well as weighting and actual 2023 achievement.
APP measures – % of target award
The Committee reviewed the performance against IHG’s Global Metrics as well as relative to peers and was satisfied that no discretion needed to be applied to the formulaic outcomes of the APP measures.
Operating profit from reportable segments is a Non-GAAP measure and excludes certain items from operating profit. Additionally, in determining operating profit from reportable segments for APP purposes, budgeted exchange rates for the year are used to ensure like-for-like comparison with the APP target set at the start of the year.
Operating profit from reportable segments
(at actual exchange rates) (see page 173)
(at 2023 budget exchange rates)
LTIP 2021/23 (granted in 2021)
Awards are made annually and eligible executives will receive shares at the end of the cycle, subject to achievement of the three-year performance conditions. These conditions and weightings are described on page 130.
TSR measures the return to shareholders by investing in IHG relative to a comparator group containing the following major globally branded competitors: Accor S.A., Choice Hotels International Inc., Hilton Worldwide Holdings Inc., Hyatt Hotels Corporation, Marriott International Inc., Melia Hotels International S.A., NH Hotels Group, and Wyndham Hotels & Resorts Inc., as per data provided by our corporate bankers sourced from Refinitiv Datastream. Maximum payout is for upper quartile relative performance, and threshold is median of the comparator group.
Any use of discretion, including the factors influencing the decision, will be clearly communicated in the Directors’ Remuneration Report for the year in which the decision is made.
The share price in respect of the 2020/22 LTIP cycle has been restated using the volume weighted average price of 5,467p for all Executive Directors on the date of actual vesting on 22 February 2023. The corresponding values shown in the 2022 report (prior to the actual vesting) were an estimate calculated using an average share price over the final quarter of 2022 of 4,687p.
Annual Report on Directors’ Remuneration continued
LTIP outcome for 2021/23 cycle
The performance measures for the 2021/23 three-year LTIP cycle were determined in accordance with the DR Policy and were:
The following tables show threshold and maximum opportunity, as well as weighting and actual achievement, based on the formulaic outcomes against the three-year targets set in 2021 for each performance measure.
Achievement
(% of maximum)
Weighted
achievement
Total Shareholder Return:
Three-year growth relative to average of competitors
30%
Maximum 83.4%
Maximum 100%
Threshold 41.6%
Threshold 20%
Relative net system size growth:
Three-year growth relative to competitors
40%
Maximum 5.1%
Threshold 2.6%
Absolute cash flow:
Based on IHG’s performance against an absolute cash flow target
Maximum $1.41bn
Threshold $1.06bn
Adjustments to absolute cash flow outcome
Over the performance period of the 2021/23 LTIP award, there have been events that have impacted IHG’s cash flow that were unquantified or unforeseen when the original targets were set. In line with the adjustments reported in previous Directors’ Remuneration Reports, the table opposite shows the reconciliation between reported cash flow and the outcome for the 2021/23 LTIP. This includes adjustments agreed by the Committee to exclude the impact of the exit from Russia, as described on page 128 of the 2022 Directors’ Remuneration Report, and consider adjustment for the Holiday Inn and Crowne Plaza quality review to the extent the final programme differed from what was reflected in the LTIP target. These adjustments had no effect on the vesting outcome.
Adjustment to other measures
As disclosed in the 2022 Directors’ Remuneration Report, IHG announced the decision to cease all operations in Russia. Net system size growth performance for IHG and all companies in the peer set for this relative measure has been adjusted to remove the Russia system size from all companies for all years. The formulaic NSSG LTIP outcome also includes an adjustment to exclude room removals incremental to our normal level due to the Holiday Inn and Crowne Plaza estate review in 2021.
These events were not budgeted for at the time of setting the 2021/23 targets, and the Committee, in its judgement, considered it was appropriate to adjust for them on the basis of its view that LTIP participants should not have been disincentivised from making these decisions in the long-term interest of shareholders.
The Committee considered performance against the ROCE underpin. The underpin level of 20% was met, with the final ROCE average of the three years being 23.7%, therefore the Committee did not need to consider adjusting the NSSG vesting level in respect of this.
Result of LTIP 2021/23 outcome
Achievement against target is measured by reference to the three years ended 31 December 2023. This cycle will vest on 21 February 2024 and Executive Directors are subject to a two-year post-vest holding period. The individual outcomes for this cycle are shown below. The share price of 6,265p used to calculate the 2021/23 LTIP cycle value shown in the single total figure table is the average over the final quarter of 2023.
Executive Director
Award cycle
(number of shares)
vested
awarded at vest)
£000
Michael Glover also received an RSU award of 2,845 shares in the 2021/23 cycle prior to his appointment to the Board. All RSU shares are due to vest and the value, which has been calculated on the same basis as the LTIP shares, is £178k of which £33k is attributable to share price appreciation. The combined value of his RSU and LTIP awards is shown in the LTIP column of the single total figure table on page 128 rounded to the nearest £000.
Other outstanding awards
Long Term Incentive Plan (LTIP) – scheme interests awarded during 2022 and 2023
During 2022, awards were granted under the LTIP cycle and made to each Executive Director over shares with a maximum value of 350% of salary for the CEO and 275% of salary for all other Executive Directors using an average of the closing mid-market share price for the five days prior to grant, as shown in the table below. These are in the form of conditional awards over Company shares and do not carry the right to dividends or dividend equivalents during the vesting period. The vesting date for the 2022/24 LTIP award is the day after the announcement of our financial year 2024 Preliminary Results in February 2025. These awards will vest to the extent performance targets are met and will then be held in a nominee account for a further two years, transferring to the award-holder in February 2027 in accordance with the two-year post-vest holding requirement.
Maximum
shares awarded
Market price
per share at grant
£
Face value of
award at grant
Number of shares
received if minimum
performance achieved
(20%)
Michael Glover was also granted an RSU award of 3,474 shares, under our LTIP for his role prior to becoming CFO, on 13 May 2022. RSU awards are not subject to performance conditions.
Keith Barr stepped down from the role of CEO, and from the Board, on 30 June 2023 and the treatment of his unvested awards is described on page 126. He was originally awarded 64,903 shares, pro-rated to 24/36 months at 31 December 2023.
During 2023, awards were granted under the LTIP cycle and made to each Executive Director over shares with a maximum value of 500% of salary for the CEO and 300% of salary for the CFO using an average of the closing mid-market share price for the five days prior to grant, as shown in the table below. These are in the form of conditional awards over Company shares and do not carry the right to dividends or dividend equivalents during the vesting period. The vesting date for the 2023/25 LTIP award is the day after the announcement of our financial year 2025 Preliminary Results in February 2026. These awards will vest to the extent performance targets are met and will then be held in a nominee account for a further two years, transferring to the award-holder in February 2028 in accordance with the two-year post-vest holding requirement.
Elie Maalouf was granted his original LTIP 2023/25 in May 2023 based on his CEO, Americas base salary. He received a pro-rated top up award following his appointment as Group CEO based on the difference between his old and new salary.
Annual Performance Plan (APP) deferred shares awarded in 2023
One half of the bonus earned in respect of the 2022 APP was deferred into shares, as detailed below:
Award – deferred shares portion
shares granted
2022 APPa
Annual bonus shares are deferred shares which are subject to continued employment, but are not subject to further performance conditions.
Michael Glover was not an Executive Director for the periods to which these awards relate; Paul Edgecliffe-Johnson was not granted a deferred APP award in respect of FY2022 since his departure was known in advance of the award grant date of 1 March 2023.
Performance measures
The performance measures for the 2022/24 LTIP cycle are as outlined below for the three years ending 31 December 2024. NSSG is a relative measure and is measured to 30 September 2024, rather than 31 December 2024, due to the timing of the publication of competitor data.
(20% of vesting)
(100% vesting)
This measure is subject to the achievement of a Return on Capital Employed (ROCE) underpin of 20%, below which the Committee has the discretion to reduce the outcome for the measure.
The performance measures for the 2023/25 LTIP cycle are as outlined below for the three years ending 31 December 2025. NSSG is a relative measure and is measured to 30 September 2025, rather than 31 December 2025, due to the timing of the publication of competitor data.
Following a disclosure of this measure in the 2023 DR Policy, a calculation error was identified in the configuration of one aspect of the target for this metric. The Committee has agreed to the correction of this mathematical error, which means the threshold and maximum targets for this metric are as disclosed above. It is important to note that this correction, resulting from a technical modelling error in incentive plan target configuration, does not alter the intended level of stretch inherent in performance required to meet targets as anticipated at the outset, nor does it impact the Company’s wider carbon reduction goals.
Consideration of discretion
Following Keith Barr’s 30 years with IHG, culminating in serving the last six as Group CEO and ensuring a smooth transition to Elie Maalouf after stepping down from the Board, the Committee exercised its discretion to treat Keith as a ‘good leaver’ for the purpose of his unvested share awards. In line with the UK Corporate Governance Code, the Committee has adopted a robust, formal framework that it will use to determine whether to exercise discretion. Some of the key factors the Committee considers are shown below.
Relative importance of spend on pay
The chart below sets out the actual expenditure of the Group in 2023 and 2022, showing the differences between those years. Operating profit from reportable segments is included as this is a significant constituent of the Annual Performance Plan. Further information, including where 2022 figures have been restated, can be found in the Group Financial Statements starting on page 154 and the accompanying notes.
Executive Directors’ shareholdings and share interests
The Committee believes that share ownership by Executive Directors and senior executives strengthens the link between the individuals’ personal interests and those of shareholders.
Guideline Executive Director shareholding requirement
Executive Directors are required to hold shares equal to 500% of salary for the Chief Executive Officer and any US-based Executive Directors, and 300% for other Executive Directors. Executive Directors are expected to hold all net shares earned until the previous guideline shareholding requirement is achieved (300% for the CEO and any US-based Executive Directors, and 200% for other Executive Directors) and at least 50% of all subsequent net shares earned until the current guideline shareholding is met. The number of shares held outright includes all Directors’ beneficial interests and those held by their spouses and other connected persons. It also includes the net value of unvested shares that are not subject to any further performance conditions.
Percentages are calculated using the 29 December 2023 share price of 7,090p.
We increased our post-employment shareholding requirement with effect from the approval of our current DR Policy, approved at the 2023 AGM, so that the full guideline minimum shareholding requirement continues for two years post-cessation of employment.
As part of this requirement, since 2019, shares have been granted and all unvested awards held in a nominee account with Executive Directors required to electronically sign an agreement to the terms of the grant, including the post-employment shareholding requirement.
Shares and awards held by Executive Directors
at 31 December 2023: % of salary
Percentages have been calculated using base salary in GBP at 31 December 2023. A combined tax and social security rate of 47% is used for both Michael Glover and Elie Maalouf.
Current Directors’ shareholdings
The APP deferred share awards are not subject to additional performance conditions. Details on the performance conditions to which the unvested LTIP awards are still subject can be found on page 132. There have been no changes in the shareholding interests of any of the Directors since the end of the financial year up to the publication of this report.
Shares and awards held by Executive Directors at 31 December 2023:
Number of shares held
outright, including those
subject to post-vest holding
Total number of
shares and awards held
We have not included 2022 comparison figures for Michael Glover as he was not in an Executive Director role at the time.
Keith Barr stepped down from the Board on 30 June 2023, however, we are disclosing the number of shares held for him as at 31 December 2023. Keith Barr’s 2023 APP deferred share awards number is net of tax and his 2023 LTIP share awards number includes the LTIP 2022/24 award pro-rated to the date he left IHG (31 December 2023).
Paul Edgecliffe-Johnson stepped down from the Board on 19 March 2023, however, we are disclosing the number of shares held for him as at 31 December 2023. His unvested LTIP and APP awards were forfeited upon leaving IHG.
Where shares were sold after stepping down from their Executive Director role, the balance of remaining shares were within the post-cessation shareholding requirement.
Other information relating to Directors’ remuneration
Dividends paid to Executive Directors
A final dividend for 2022 of 76.08p per ordinary share (94.5¢ per ADR) was paid on 16 May 2023 to shareholders on the Register of members at the close of business on 31 March 2023.
An interim dividend of 38.7p per ordinary share (48.3¢ per ADR) was paid on 5 October 2023 to shareholders on the Register of members at the close of business on 1 September 2023.
Dividends are payable on vested shares held outright, including those subject to a post-vest holding period, and deferred APP shares.
Relative performance graph
InterContinental Hotels Group PLC is a member of the FTSE 100 share index and the graph below shows the Company’s TSR performance from 31 December 2013 to 31 December 2023, assuming dividends are reinvested, compared with the TSR performance achieved by the FTSE 100.
Chief Executive Officer’s remuneration
The table below shows the Chief Executive Officer’s single figure of total remuneration for the 10 years to 31 December 2023.
Single figure
CEO
Single figure of remuneration
(£000)
Annual incentive received
Shares received under the LTIP
For Keith Barr, the 2018 figure includes a one-off cash payment for relocation costs in lieu of benefits received while on international assignment prior to CEO position, which was fully explained in the 2017 report.
For Richard Solomons, the 2014 figure includes a one-off cash payment in respect of pension entitlements, which was fully explained in the 2014 report.
In respect of period 1 January to 30 June 2017.
For Elie Maalouf, the 2023 figure includes a one-off cash payment for relocation costs, fully explained on page 126 of this report. All other elements included in the 2023 figure are in respect of the period 1 July to 31 December 2023 only, except for LTIP which is the full value of Elie’s 2021/23 award granted before he became Group CEO.
In respect of period 1 January to 30 June 2023 only (except for LTIP which is the full value of the LTIP 2021/23 award).
Payments to past Directors
Sir Ian Prosser
Sir Ian Prosser, who retired as Director on 31 December 2003, had an ongoing healthcare benefit of £1,710 during the year.
Payments for loss of office
Keith Barr
Keith Barr stepped down from the Board of IHG on 30 June 2023. A statement to this effect was prepared pursuant to Section 430(2B) of the CA 2006 and can be found on the IHG PLC website. He remained an employee of the Company until 31 December 2023 and therefore continued to receive salary and benefits and remain eligible for a 2023 APP award. The Committee
exercised its discretion to treat Keith as a ‘good leaver’ for the purpose of his unvested share awards, pro-rated to his date of leaving for the LTIP and they will continue to vest according to the normal vesting schedule for the award. He did not receive a grant in the 2023/25 LTIP cycle. IHG also agreed to settle fees of £13,850 plus VAT in connection with legal advice to Keith on these arrangements. Full details of his arrangements on leaving and the use of discretion are shown on pages 126 and 132.
Pension entitlements
No Executive Director is entitled to any Defined Benefit pension or related benefit from IHG.
CEO pay ratio
As we have noted in previous DRRs, pay ratios will differ significantly between companies, even within the same industry, depending on demographics and business models. The Group’s UK employee demographic, which primarily consisted of largely professional, management and senior corporate roles, changed in 2019 with the addition of a number of hotel employing entities, comprising the UK leased estate, which includes a large proportion of part-time and flexible-working support and service roles. As per our past disclosures, we show the ratio both including and excluding the UK hotel employing entities.
The 2018-2022 figures have been restated to reflect the value of the CEO’s LTIP awards on the date of actual vesting rather than the estimated vesting levels used in the respective years’ DRRs.
What drives the difference in pay between our CEO and other employees?
Pay ratios reflect how remuneration arrangements differ as responsibility increases for more senior roles within the organisation, for example:
this is the first year the increased LTIP quantum from the 2020 DR Policy vests for the CEO, the increase was deferred by a year so was not granted at the higher level until 2021. Although there was a strong APP outcome for both the CEO and wider corporate population, a greater proportion of performance-related variable pay and share-based incentives apply for the more senior executives, including Executive Directors, who will have a greater degree of influence over performance outcomes;
role-specific specialist plans apply in certain areas such as corporate reservations, sales, hotel development and General Managers of IHG managed, owned, leased and managed lease hotels. The target and maximum amounts that can be earned under these plans are typically a higher percentage of base salary for more senior employees, which in turn affect the pay ratio; and
incentive plans for other corporate employees are typically based on a combination of individual performance and the Group’s operating profit from reportable segments.
The increase in ratio since 2020, reflects the strong performance of the business and the resulting increases in variable pay outcomes. The comparative CEO figure used for calculating this year’s ratio included some one-off costs associated with Elie Maalouf’s relocation.
The population demographics have also had a larger impact than in previous years as the full population in 2023 includes a greater number of hotel employees than it did in 2022. Overall, on this basis, the Company believes the median pay ratio for the relevant financial year is consistent with the pay, reward and progression for the Company’s UK employees taken as a whole.
Calculation methodology and supporting information
Option C has been selected for the identification of the percentile employees. IHG prefer to use this method as we are able to produce the most accurate total remuneration figure for all UK employees on a basis comparable with the statutory reporting for Executive Directors using the most recently available data at the time of producing the Annual Report. Specifically, this involves:
compiling all monthly payroll data for all UK employees from 1 January to 31 December 2023 detailing complete variable and fixed remuneration, including pension and taxable benefits such as company car or allowance and healthcare; and
valuing APP for the corporate workforce based on actual 2023 company performance metrics but only target for the personal performance metric, as actual outcomes for this element of the award are not known at the time of writing this report, so that it reflects as much of the same input as for the CEO data as possible at the time of calculation. In practice, personal performance outcomes are subject to manager discretion and can be flexed between 0-200% of target.
As noted on page 126, we had a change of CEO during 2023, so we have used pro-rated salary, benefits, pension and bonus amounts for Keith Barr and Elie Maalouf for the respective periods in which they were CEO for calculating the pay ratio this year. We have used the full value of Keith Barr’s LTIP 2021/23 award, however, as this award was granted at the full level available to the CEO as per the DR Policy at the time, and we believe it is the most accurate figure for this disclosure.
Option C requires three UK employees to be identified as the equivalent of the 25th, 50th and 75th percentile. Having identified these employees, the 2023 remuneration is calculated on the same basis as the CEO single total figure of remuneration.
The pay arrangements for the six employees, three from the full population and three from the population excluding hotel employing entities, were reviewed alongside those for the employees ranked immediately above and below them to confirm that they were representative of pay levels at these quartiles. The 2023 salary and total pay for the individuals identified at the lower, median and upper quartiles are set out below:
Total
remuneration £
The total salary figure used for the 25th percentile for the full population includes periods of unpaid absence and the base pay for the year excluding this would have been £23,463.23.
In the 2022 Directors’ Remuneration Report, we confirmed that the Real Living Wage would be applied as a minimum for all staff from April 2023 and on reviewing the 25th percentile for this year’s ratio, we can see that the annual salary for the 25th percentile (full population) following April 2023 merit increases is £24,128. This is above the annualised Real Living Wage salary for 2022/23 of £22,672 (£11.60ph vs £10.90ph).
Single total figure of remuneration: Non-Executive Directors
appointment
Rounded to the nearest £000
See page 96 for Board and Committee membership key and attendance.
Fees: Fees are paid in line with the DR Policy. Jill McDonald and Ian Dyson stepped down from the Board on 28 February 2023, so all fees and taxable benefits for these Directors ceased on this date. Angie Risley joined the Board on 1 September 2023, so all fees and taxable benefits for this Director began on their appointment date.
Benefits: For Non-Executive Directors, benefits include taxable travel and accommodation expenses to attend Board meetings away from the designated home location. Under UK income tax legislation, the non-UK based Non-Executive Directors are not subject to tax on some travel expenses; this is reflected in the taxable benefits for Deanna Oppenheimer, Duriya Farooqui and Sharon Rothstein.
Other: Non-Executive Directors are not eligible for any incentive awards or for any pension contribution/benefit.
Non-Executive Directors’ shareholding and share interests
The Non-Executive Directors who held shares are listed in the table below:
Shares held in the form of American Depositary Receipts (ADRs).
Shares held as at 31 December 2023 or the date at which they ceased to be a Non-Executive Director.
The 2022 figure for Daniela Barone Soares has been restated due to additional shares being acquired pursuant to a standing instruction in relation to a Dividend Reinvestment Plan (DRIP).
Where Directors have remained in role, there have been no changes in the shareholding interests of any of the Directors since the end of the financial year up to the publication of this report.
Fees: Non-Executive Directors
The fees for Non-Executive Directors are reviewed and agreed annually in line with the DR Policy; 2023 increases were lower than the budget for the wider UK and US corporate workforce and 2024 increases are in line with the wider workforce budget. The basis for setting fee levels for 2024 will be as follows, each element independently rounded to the nearest £000:
2024
Annual percentage change in remuneration of Directors compared to employees
The table below shows the percentage change in all Directors’ remuneration compared to that of an average employee between the financial years ended 31 December 2019 to 31 December 2023.
The 2023 remuneration figures for the Directors are taken from the data used to compile the single total figure of remuneration tables shown on pages 128 and 136, excluding any rounding up or down. No employees are directly employed by the Group’s Parent Company, so the average employee data for this year’s report is based on the same UK corporate employee population as that on which the CEO pay ratio is calculated.
Elie Maalouf became Group CEO on 1 July 2023 which involved a relocation to the UK. Elie’s salary in the previous year-on-year changes was calculated in USD with the equivalent single total figure table disclosures reported in GBP. From 1 July 2023, Elie’s salary has been in GBP so, to reduce any impact of the currency conversion, we are now calculating his percentage change in GBP. This is the currency in which his salary, bonus and a large sum of his benefits will be paid going forward, and therefore will provide a more meaningful indication of his year-on-year remuneration changes and align further with the intentions of this disclosure.
All corporate employees share the same corporate performance metrics with the Executive Directors; however, the weightings of these metrics differ for corporate employees below Executive Committee level and measures include an individual performance portion, the results of which are not available at the time of reporting. For average employee data, we assume that target performance is achieved. Non-Executive Directors are not eligible for a bonus.
Taxable benefits for Non-Executive Directors largely comprise travel expenses whereas Executive Director and average employee taxable benefits typically comprise elements of their reward package, such as company car or allowance and healthcare benefits.
Year-on-year change
2021 vs 2020
2020 vs 2019
Please see notes below for further details on these percentage change anomalies.
Notes to the annual percentage change in remuneration of Directors compared to employees table
No data has been reported for Byron Grote and Deanna Oppenheimer as they both joined the Board during 2022 and therefore only part-year data is available, which does not enable a comparison with 2023. Similarly, Michael Glover and Angie Risley both joined the Board during 2023, so there will be no full-year data comparisons for them in 2023 and 2024.
Graham Allan was appointed as Chair of the Responsible Business Committee in addition to his role as Senior Non-Executive Director from 1 March 2023, so his salary percentage change increase incorporates the base fee increase and the addition of his role supplements.
As explained above, Elie Maalouf took on the role of Group CEO on 1 July 2023, therefore his salary percentage change increase incorporates his new remuneration package for part of 2023. Elie’s 2023 taxable benefits figure also includes additional relocation costs, including a one-off relocation payment and an ongoing housing allowance which were not applicable in 2022. The 2022 vs 2021 percentage change for Elie has been updated due to the 2022 benefits figure being restated as noted on page 128.
In 2023, more in-person Board Meetings were held than in 2022. Graham Allan incurred only £2,016.61 in expenses in 2022 but incurred £4,200.55 in 2023, hence the percentage change increase for 2023 vs 2022 is 108%. Similarly, Daniela Barone Soares, Arthur de Haast and Duriya Farooqui incurred an additional £734.70, £1,310.10 and £1,370.07 on 2022 figures respectively. As expected, the extreme fluctuations shown in percentage change in last year’s disclosure have already begun to reduce and we expect these to even out more going forward as Board meetings return to a more regular structure.
The bonus outcome for the average employee has fallen by a lower percentage than that of Executive Directors due to the difference in weightings for measures and additional budget being made available for the individual performance element for employees below Executive Committee level.
Any significant percentage changes in the previous year-on-year changes (2022 vs 2021, 2021 vs 2020 and 2020 vs 2019) are explained in the relevant year’s Directors’ Remuneration Report.
This section explains how certain elements of the DR Policy will be applied in 2024.
Salary: Executive Directors
Directors’ salaries are agreed annually in line with the DR Policy.
The following salaries will apply from 1 April 2024:
Increase
%
Elie Maalouf is not eligible for a merit increase in 2024 following his appointment as Group CEO on 1 July 2023. Further details regarding his appointment can be found on 126. The increase for the CFO is shown above and is in line with the budget for the wider corporate workforce. For Executive Director merit increases, we use a range of considerations including wider workforce merit increases, market data and external benchmarking. In addition to FTSE 100 data and other hotel comparators, we use the following US comparator group for CEO salary and overall pay benchmarking: Choice Hotels International Inc.; Hilton Worldwide Holdings Inc.; Hyatt Hotels Corporation; Marriott International Inc.; and Wyndham Hotels & Resorts Inc.
Measures for 2024 APP
The 2024 APP structure is in line with the approved DR Policy and will be based on a 70% weighting for a measure of operating profit from reportable segments and a 30% weighting for other key strategic measures that are reviewed annually and set in line with business priorities. The target award has been reduced from 115% to 100% of salary, and subject to meeting minimum shareholding requirements, up to 70% of the award may be paid in cash and at least 30% in deferred shares.
Operating profit from reportable segments is a focal measure of business performance for our shareholders and is a function of other critical measures, such as RevPAR, profit margin and fee revenues. The Committee has determined that for 2024, it remains important to the Company’s strategic objectives to focus on new room openings and new room signings in the APP. New room openings are critical to driving both short- and long-term profitable growth and are a recognised key performance measure across the industry, whilst new room signings provide the best gauge of future growth as they create the path for openings in future years, which will, in turn, drive profit and revenue growth. The two strategic measures will be evenly weighted, with each worth 15% of the overall APP. The targets are commercially sensitive and will be disclosed in the 2024 Annual Report.
Definition
Weighting
Performance objective
A measure of IHG’s operating profit from reportable segments for the year
70%
Achievement against target
Absolute number of new room signings
15%
Absolute number of new room openings
Measures and targets for 2024/26 LTIP cycle
For the 2024/26 cycle, we will retain a net system size growth (NSSG) measure reflecting our strategy of accelerating the growth of our brands in high-value markets, this will have a relative performance target against our six largest competitors and the weighting for this measure will remain at 20%. The cash flow measure to deliver consistent and sustained growth remains in place with a weighting of 20%. Total Shareholder Return (TSR) continues to make up another 20% of the 2024/26 cycle measures; the TSR comparator group has been updated for the 2024/26 cycle. The existing comparator group (up to the 2023/25 LTIP cycle) can be found on page 129 of this report and the new TSR comparator group (with effect from the 2024/26 LTIP cycle) can be found within the table below. Alongside the new companies that have been added to the group, the existing member NH Hotels has been replaced with its majority shareholder, Minor International. Adjusted earnings per share (EPS) was introduced as a balancing measure to TSR with effect from the 2023/25 LTIP cycle, and this will remain in place with a 20% weighting as a balance to the more volatile and less controllable TSR measure.
Adjusted EPS targets incorporate assumed share buybacks as part of our ongoing shareholder return programme, so the Committee would not expect to adjust performance outcomes at the end of the performance period for buybacks made during the cycle. Following the introduction of an ESG measure in our 2023/25 LTIP cycle, we have continued to include ESG in the 2024/26 cycle with a weighting of 20% made up of four equally weighted measures based on IHG’s People and Planet goals. Further information, including on the underlying metrics for ESG, can be found on page 140.
The measures for the 2024/26 cycle are as follows:
IHG’s performance against a comparator group of global hotel companies against which TSR outcomes are measured: Accor S.A.; Choice Hotels International Inc.; Dalata Hotel Group PLC; H World Group Limited; Hilton Worldwide Holdings Inc.; Hyatt Hotels Corporation; Indian Hotels Company Limited; Jin Jiang International Holdings Company Limited; Marriott International Inc.; Melia Hotels International S.A.; Minor International; Scandic Hotels Group AB; Shangri-La Hotel Public Company Limited; Whitbread plc.; and Wyndham Hotels & Resorts Inc.
20%
Threshold: median of comparator group (20% of TSR element vests);
Maximum: upper quartile of comparator group (100% of TSR element vests); and
Vesting will be on a straight-line basis in between the two points above.
IHG’s aggregated compound annual growth rate (CAGR) against our six largest competitors with over 500k rooms: Marriott International Inc.; Hilton Worldwide Holdings Inc.; Accor S.A.; Jin Jiang International Holdings Company Limited; Wyndham Hotels & Resorts Inc.; and Choice Hotels International Inc.. Targets will be set based on increased room count that is consistent with the relevant company’s business plan objectives and practice as at the start of the LTIP cycle.
Threshold: fourth ranked competitor excluding IHG (20% of NSSG element vests);
Maximum: first ranked competitor excluding IHG (100% of NSSG element vests); and
Cumulative annual cash generation over the three-year performance period. Absolute cash flow includes reported cash flow from operations and net cash from investing activities.
Threshold: US 2.395bn (20% of cash flow element vests);
Maximum: US 3.421bn (100% of cash flow element vests); and
1. Adoption of existing energy conservation measures (ECMs)
Adoption of agreed ECMs by existing Americas Essentials and Suites hotels that are the subject of licence renewal or conversion property improve plans – (including franchise – Scope 3).
2. Low/zero carbon hotels
Development of hotels that operate at very low/zero carbon, focused primarily on new-build hotels, to support delivery of our carbon and energy goals.
3. Inclusion
Improvement in ‘Inclusion Index’ scores for US and UK ethnically diverse hotel and corporate colleagues compared to all US and UK hotel and corporate colleagues.
4. Talent interventions
Impact of our Journey to GM, Career Insights and RISE Talent programmes.
20%(5% each)
1. Threshold vesting will occur if there is aggregate adoption of each of the five ECMs at 80% of hotels and maximum vesting will occur if there is aggregate adoption of each of the five ECMs at 100% of hotels. Vesting will be on a straight-line basis for achievement between threshold and maximum.
2. Threshold vesting will occur if 10 hotels are open or under construction globally and maximum vesting will occur if 15 hotels are open or under construction globally. Vesting will be on a straight-line basis for achievement between threshold and maximum.
3. Threshold vesting will occur if the average of Inclusion Index scores for US and UK ethnically diverse hotel and corporate colleagues is not more than 7% below that of the total population in the final year of the performance period and maximum vesting will occur if the average Inclusion Index scores for US and UK ethnically diverse hotel and corporate colleagues are at least in line with that of the total population in the final year of the performance period. Vesting will be on a straight-line basis between the above two points.
4. Threshold vesting will occur if 30% of talent who took part in the programmes between 2022 and 2024 have been promoted by 31 December 2026 and maximum vesting will occur if 50% of talent who took part in the programmes between 2022 and 2024 have been promoted by 31 December 2026. Vesting will be on a straight-line basis between the above two points.
For each of the above performance objectives, 20% of the element vests at threshold achievement and 100% of the element vests at maximum achievement.
Absolute compound annual growth rate (CAGR)
Threshold vesting will occur if adjusted EPS CAGR is 5% per annum (20% of adjusted EPS element vests);
Maximum vesting will occur if adjusted EPS CAGR is 12% per annum or more (100% of adjusted EPS element vests); and
ESG measures
Our ESG measures for the 2024/26 LTIP cycle are again aligned to the Planet and People aspects of our Journey to Tomorrow responsible business plan. The new measures build on the 2023/25 LTIP cycle, with the Planet measures focusing on the ongoing rollout of new Energy Conservation Measures (ECMs) in the existing hotel estate as part of our brand standards and the development of hotels that operate at very low/zero carbon, a programme for which is expected to launch in 2024. Stretching targets have been set for these metrics, with full payout requiring 100% adoption of five ECMs, including in franchise hotels (Scope 3) and 15 new hotels that operate at low/zero carbon open or under construction. These are important areas within management control which support the delivery of our long-term carbon and energy goals.
The 2024/26 People measures build on and complement our representation measures in the 2023/25 cycle. They are focused on strengthening our inclusive culture and talent-driven approach to growth, as part of our commitment to our people. A challenging maximum target has been set to level up the average of ‘inclusion index’ scores, an aspect of our employee engagement survey (carried out by an external party), for ethnically diverse US and UK corporate and hotel colleagues to be at least in line with those of the respective full employee populations. Threshold for this measure has been set after careful consideration of the range of current differences in scores across these respective populations. The second People measure for the 2024/26 cycle supports our hotel growth agenda through existing talent intervention programmes targeted at developing the next generation of hotel managers. This includes the RISE programme, which aims to increase the number of female colleagues in hotel leadership roles across our managed and leased estates. The threshold for this measure is set in line with the average post-programme promotion rate for the three years to the end of 2023. The maximum target requires achievement of a very stretching 50% promotion rate from the 2022, 2023 and 2024 cohorts of the Journey to GM, Career Insights and RISE programmes by the end of the cycle in 2026.
Total Shareholder Return (TSR) comparator group
Our existing TSR comparator group was agreed in 2016 and originally included two additional companies that have since been removed due to a merger and delisting. The exit of these from public capital markets, and thus from the comparator group, resulted in a relatively small remaining comparator group. As a result, the Committee has made the decision to expand the comparator group from 8 to 15 global hotel companies. We believe that this mitigates the potential for the existing comparator group to become smaller due to industry consolidation or other factors.
The Committee applied a robust set of filters to select the additions to the comparator group and believe that the broadening of the comparator group reflects that IHG has an international footprint; competes with a wide range of hotel peers across the world; and that we have a diverse investor base, with some shareholders more focused on European and globally listed businesses, in addition to those with a US-listed business focus.
Statement of compliance
Our Statement of compliance summarises how the Group has applied the principles of the 2018 UK Corporate Governance Code (available at frc.org.uk/library/standards-codes-policy/corporate-governance/uk-corporate-governance-code/ under UK Corporate Governance Code) as published in July 2018 (the Code) and comments on compliance with the Code’s provisions.
This should be read in conjunction with the Strategic Report on pages 2 to 88, and Governance, including the Directors’ Remuneration Report, on pages 89 to 140, as a whole.
The Board considers that the Group has complied in all material respects with the Code’s provisions for the year ended 31 December 2023, save as noted below in section 5 P (Remuneration policies and practices) in respect of provision 38.
Board Leadership and Company Purpose
The Board continues to lead the Group’s strategic direction and long-term objectives. Further responsibilities of the Board are set out on page 100.
The Board met eight times during 2023 and all Directors continue to act in what they consider to be the best interests of the Company, consistent with their statutory duties. Further details of 2023 Board meetings, including information on matters discussed and decisions taken by the Board, are set out on pages 101 to 103; attendance information is on page 96; and skills and experience and biographical information is on pages 92 to 95.
A description of IHG’s business model is set out on pages 10 to 13. An assessment of the principal risks facing the Group is included on pages 42 to 49.
Potential conflicts of interest are reviewed annually and powers of authorisation are exercised in accordance with the Companies Act and the Company’s Articles of Association.
During the year, if any Director has unresolved concerns about the operation of the Board or the management of the Company, these would be recorded in the minutes of the meeting.
The Company’s purpose, values and strategy
Our purpose is to provide True Hospitality for Good. A description of our culture, including an overview of our values and information on how the Board ensures alignment between our purpose, values and strategy and our culture, is included on pages 38 to 41. A summary of the Board’s activities in relation to the Voice of the Employee is included on page 113. Information on the Group’s approach to rewarding its workforce is contained on pages 29 to 30 and 123 and 124.
Resources
The Board delegates oversight of the allocation of day-to-day resources to management (principally through the Executive Committee).
Information on the Group’s key performance indicators, including the measures used to monitor them, is included on pages 60 to 63.
A summary of the procedures for identifying and discussing emerging risks is set out on pages 42 to 49.
Shareholders and stakeholders
The Board engaged actively throughout 2023 with shareholders and other stakeholders. The Chair held a number of meetings with major institutional shareholders to discuss the role of the Board and other general governance issues, following which the Chair ensured that their views were communicated to the Board as a whole. The (then) Chair of the Remuneration Committee also engaged extensively with shareholders during the year. Further details are on page 125.
Information on the Board’s consideration of and engagement with other stakeholders, including employees, suppliers, hotel owners and guests, is included on pages 36 and 37.
Workforce policies and practices
The Board has overarching responsibility for the Group’s workforce policies and practices and delegates day-to-day responsibility to the CEO and Chief Human Resources Officer to ensure that they are consistent with the Company’s values and support its long-term success.
Employees are able to report matters of concern confidentially through our Confidential Disclosure Channel. The Board routinely reviews reports generated from the disclosures and ensures that arrangements are in place for investigation and follow-up action as appropriate.
Division of Responsibilities
The Chair
Deanna Oppenheimer leads the operation and governance of the Board and its Committees. The Chair has been in post since September 2022 and was independent on appointment.
The size and composition of the Board and its Committees are kept under review by the Nomination Committee to ensure the appropriate combination of Executive and Non-Executive Directors. Details of the composition of the Board and Committees are available on pages 92 to 96.
At least half of the Board, excluding the Chair, are Independent Non-Executive Directors. Provision 10 of the Code considers the independence of Non-Executive Directors and circumstances that might impair their independence, including holding office for over nine years. Jo Harlow reached a nine-year tenure in September 2023, before retiring from the Board on 31 December 2023. In light of Jo’s role as Chair of the Remuneration Committee, the Board considered a slight extension to her nine-year tenure as appropriate to facilitate an orderly transition to Angie Risley, who succeeded Jo as Chair of the Remuneration Committee from 1 January 2024.
The Board carefully considered Jo’s contributions and commitments in light of her extended tenure, and concluded that she remained independent.
Non-Executives
Non-Executive Director terms of appointment outline IHG’s time commitment expectations required to fulfil their role.
The commitments of each Director are included in the Directors’ biographical details on pages 92 to 95. Details of Non-Executive Director appointment terms are set out on page 125.
The Chair annually reviews the time each Non-Executive Director dedicates to IHG as part of the performance evaluation of Directors (see page 106) and is satisfied that their other duties and time commitments do not conflict with those as Directors.
Graham Allan is the Senior Independent Non-Executive Director (SID). The SID provides a sounding board for the Chair and serves as an intermediary for the other Directors and shareholders. Graham also led the annual performance review of the Chair (see page 106).
After each Board meeting, Non-Executive Directors and the Chair meet without Executive Directors being present.
Statement of compliance continued
Policies, processes, information and resources
The Chair and Company Secretary ensure that the Board and its Committees have the necessary policies and processes in place and that they receive timely, accurate and clear information. The Board and its Committees also have access to the Company Secretary, independent advice and other necessary resources, at the Company’s expense. They receive the administrative and logistical support of a full-time executive assistant.
Composition, Succession and Evaluation
Appointments
Appointments to the Board are led by the Nomination Committee in accordance with its Terms of Reference (available on our website at ihgplc.com/investors under Corporate governance).
The Nomination Committee also supports the Board in succession planning for the Board and senior management. Further details of the role of the Nomination Committee and what it did in 2023 are in the Nomination Committee Report on pages 114 and 115.
The overall process of appointment and removal of Directors is overseen by the Board as a whole.
All of the Directors retire and seek election or re-election at each AGM.
Skills
Details of the skills, experience and biographical information of the Board are set out on pages 92 to 95.
The Chair and Company Secretary ensure that new Directors receive a full induction, and that all Directors continually update their skills and have the requisite knowledge and familiarity with the Group to fulfil their role (see page 104).
The length of service of Non-Executive Directors is reviewed regularly.
Annual evaluation
The Board undertakes either an internal or external annual Board effectiveness evaluation. In 2023, the Board undertook an external evaluation. Details of the process and results of the evaluation are included on pages 104 to 106.
Performance evaluations of Directors, including the Chair, are also carried out on an annual basis. Directors’ biographies are set out on pages 92 to 95, and details of performance evaluations carried out in 2023 are on page 106.
Audit, Risk and Internal Control
Audit functions
The Audit Committee is comprised entirely of Independent Non-Executive Directors (see page 96 for membership details).
Byron Grote, the Audit Committee’s Chair, has recent and relevant financial experience, and the Committee as a whole has competence relevant to the sector in which we operate. Details of the Committee’s role, responsibilities and activities are set out on pages 107 to 111.
The Audit Committee reviewed the effectiveness of the Group’s Internal Audit function and also assessed PricewaterhouseCoopers LLP’s performance during 2023, including its independence, effectiveness and objectivity. Details of these reviews are set out in the Audit Committee Report on pages 107 to 109.
Assessment of the Company’s position and prospects
The Statement of Directors’ Responsibilities (including the Board’s statement confirming that it considers that the Annual Report and Form 20-F, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position, performance, business model and strategy) is set out on page 144.
The status of IHG as a going concern is set out in the Directors’ Report on page 241. An explanation of the Group’s performance, business model, strategy and the risks and uncertainties relating to IHG’s prospects, including the viability of the Group, is set out in the Strategic Report on pages 2 to 88.
The Board determines the nature and extent of the principal risks the organisation is willing to take to achieve its strategic objectives. The Board completed an assessment of the principal and emerging risks facing the Group during the year, including those risks that would threaten the Group’s business model, future performance, solvency or liquidity and reputation (see pages 42 to 49 for further details of the principal risks). The Board and Audit Committee monitor the Group’s risk management and internal controls systems and conduct an annual review of their effectiveness. Throughout the year, the Board has directly, and through delegated authority to the Executive Committee and the Audit Committee, overseen and reviewed all material controls, including financial, operational and compliance controls. See pages 42 to 49 and 107 to 109.
Remuneration policies and practices
The Remuneration Committee is responsible for developing policy on executive remuneration and determining remuneration packages of Directors and senior management. The Directors’ Remuneration Report is set out on pages 116 to 140. Details of the Remuneration Committee’s focus areas during 2023 are set out on page 125 and its membership details are on page 96.
Provision 38 of the Code states that pension contribution rates for executive Directors should be aligned with those available to the workforce. As explained in the Annual Report and Form 20-F 2019, this was to be the case for new UK appointments and (then) existing UK Executive Directors from January 2023. US retirement benefit arrangements differ in a number of ways from the UK and include a Deferred Compensation Plan for senior employees.
Given the importance of the CEO, Americas’ role to the business and the market competitiveness concerns over Executive Director pay, the arrangements as they related to Elie Maalouf in his role as CEO, Americas were maintained up to the end of his tenure in that role on 30 June 2023. With effect from 1 July 2023, Elie was promoted to Group CEO and transferred to a UK pension basis. As such, effective from 1 July 2023, the pension arrangements for Executive Directors are now in line with Provision 38 of the Code. Further details can be found on page 123.
Procedure for developing policy on executive remuneration
Details of how the Directors’ Remuneration Policy (DR Policy) was implemented in 2023 are set out on pages 128 to 137.
During 2023, no individual Director was involved in deciding his or her own remuneration outcome.
Independent judgement and discretion
The Remuneration Committee has formal discretions in place in relation to outcomes under the Deferred Award Plan rules, and these are disclosed as part of the DR Policy. When determining outcomes under incentive plans, the Committee considers whether it is appropriate to adjust outcomes under these discretions, taking account of the Group’s performance, relative performance against competitors and other relevant factors. Information on the Remuneration Committee’s consideration of the use of discretion during 2023 is set out on page 132.
Statement of Directors’ Responsibilities
Financial Statements and accounting records
The Directors are required to prepare the Annual Report and Form 20-F and the Financial Statements for the Company and the Group at the end of each financial year in accordance with applicable law and regulations. Under company law, directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and the Group and the profit or loss of the Group for that period. The Directors have prepared the Consolidated Financial Statements in accordance with UK-adopted international accounting standards and International Financial Reporting Standards (‘IFRSs’) issued by the International Accounting Standards Board (‘IASB’). The Company Financial Statements have been prepared in accordance with UK accounting standards, comprising Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (‘FRS 101’), and applicable law.
In preparing these Financial Statements, IHG Directors are required to:
select suitable accounting policies and apply them consistently;
make judgements and accounting estimates that are reasonable;
state whether the Consolidated Financial Statements have been prepared in accordance with UK-adopted international accounting standards;
state for the Company Financial Statements whether applicable UK accounting standards, comprising FRS 101, have been followed; and
prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business.
The Directors have responsibility for ensuring that the Company and the Group keep adequate accounting records sufficient to show and explain the Company’s and the Group’s transactions, and which disclose with reasonable accuracy the financial position of the Company and the Group to enable them to ensure that the Financial Statements and the Directors’ Remuneration Report comply with the Companies Act 2006.
The Directors are also responsible for the system of internal control, for safeguarding the assets of the Company and the Group, and taking reasonable steps to prevent and detect fraud and other irregularities.
Disclosure Guidance and Transparency Rules
The Board confirms that to the best of its knowledge:
The Consolidated Financial Statements have been prepared in accordance with UK-adopted international accounting standards, and IFRSs as issued by the IASB, and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group taken as a whole;
The Company Financial Statements have been prepared in accordance with UK accounting standards, comprising FRS 101, and give a true and fair view of the assets, liabilities and financial position of the Company; and
The Annual Report, including the Strategic Report, includes a fair review of the development and performance of the business and the position of the Company and the Group taken as a whole, together with a description of the principal risks and uncertainties that it faces.
UK Corporate Governance Code
Having taken advice from the Audit Committee, the Board considers that this Annual Report and Form 20-F, taken as a whole, is fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company’s and the Group’s position and performance, business model and strategy.
Disclosure of information to Auditor
The Directors who held office as at the date of approval of this report confirm that they have taken steps to make themselves aware of relevant audit information (as defined by Section 418(3) of the Companies Act 2006). None of the Directors are aware of any relevant audit information that has not been disclosed to the Company’s and Group’s Auditor.
Management’s report on internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Group, as defined in Rule 13a–15(f) and 15d–15(f) under the Securities Exchange Act of 1934 as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRSs.
The Group’s internal control over financial reporting includes policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Group’s transactions and dispositions of assets;
are designed to provide reasonable assurance that transactions are recorded as necessary to permit the preparation of the Consolidated Financial Statements in accordance with UK-adopted international accounting standards and IFRSs as issued by the IASB, and that receipts and expenditure are being made only in accordance with authorisation of management and the Directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of the Group’s assets that could have a material effect on the Consolidated Financial Statements.
Any internal control framework has inherent limitations and internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Management has undertaken an assessment of the effectiveness of the Group’s internal control over financial reporting at 31 December 2023 based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework).
Based on this assessment, management has concluded that as at 31 December 2023 the Group’s internal control over financial reporting was effective.
During the period covered by this document there were no changes in the Group’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the effectiveness of the internal controls over financial reporting.
The Group’s internal control over financial reporting at 31 December 2023, together with the Group’s Consolidated Financial Statements, were audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm. Their auditor’s report can be found on page 151.
For and on behalf of the Board
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Independent Auditor’s US Report
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of InterContinental Hotels Group PLC
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying Group statements of financial position of InterContinental Hotels Group PLC and its subsidiaries (the “Group”) as of 31 December 2023 and 31 December 2022 and the related Group income statements and Group statements of comprehensive income, changes in equity and cash flows for each of the three years in the period ended 31 December 2023, including the accounting policies and the related notes (collectively referred to as the “Group Financial Statements”). We also have audited the Group’s internal control over financial reporting as of 31 December 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the Group Financial Statements referred to above present fairly, in all material respects, the financial position of the Group as of 31 December 2023 and 2022 and the results of its operations and its cash flows for each of the three years in the period ended 31 December 2023 in conformity with (i) International Financial Reporting Standards as issued by the International Accounting Standards Board and (ii) UK-adopted International Accounting Standards. Also in our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of 31 December 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Group’s management is responsible for these Group Financial Statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in management’s report on internal control over financial reporting on page 144. Our responsibility is to express opinions on the Group Financial Statements and on the Group’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the Group Financial Statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the Group Financial Statements included performing procedures to assess the risks of material misstatement of the Group Financial Statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the Group Financial Statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Group Financial Statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over
Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the Group Financial Statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the Group Financial Statements and (ii) involved our especially challenging, subjective or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the Group Financial Statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Independent Auditor’s US Report continued
Breakage assumption used to estimate IHG One Rewards loyalty programme deferred revenue
As described in the Estimates section of the Accounting policies and in Note 3 to the Group Financial Statements, deferred revenue relating to the IHG One Rewards loyalty programme was $1,529m as of 31 December 2023. The hotel loyalty programme, IHG One Rewards, enables members to earn points during each qualifying stay at an IHG branded hotel and through other partnerships and programmes. Members are able to consume those points at a later date for free or reduced accommodation or other benefits. Points revenue includes hotel assessments, revenue from third-party partners and proceeds from points purchased directly by members. The Group recognises deferred revenue in an amount that reflects the Group’s unsatisfied performance obligations, valued at the stand-alone selling price of the future benefit to the member. The amount of revenue recognised and deferred is impacted by the estimate of breakage (points that will never be consumed). On an annual basis, the Group engages an external actuary who uses statistical formulae to assist in the estimate of breakage. Significant estimation uncertainty exists in projecting members’ future consumption activity. In 2022 and 2021, the breakage estimate was formed using pre Covid-19 behaviour patterns as a base, but giving some weight to activity since 2020 and incorporating the impact of 2022 programme changes. In 2023, the breakage estimate has been formed without any equivalent adjustment, reflecting normalising patterns of redemption behaviour. If future member behaviour deviates significantly from expectations, breakage estimates could increase or decrease.
The principal considerations for our determination that performing procedures relating to the breakage assumption used to estimate IHG One Rewards loyalty programme deferred revenue is a critical audit matter are (i) the significant judgement by management when projecting members’ future consumption of points; (ii) a high degree of auditor judgement, subjectivity and effort in performing procedures and evaluating management’s breakage assumption; and (iii) the audit effort involved the use of professionals with specialised skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the Group Financial Statements. These procedures included testing the effectiveness of controls relating to management’s determination of the breakage assumption. These procedures also included, among others, (i) testing a sample of data used by management’s external actuary in deriving the breakage assumption to underlying records; (ii) assessing the competence and objectivity of management’s actuary and understanding the methods and assumptions adopted by it in determining breakage; (iii) developing an independent expectation of a reasonably possible range for deferred revenue based on independently determined breakage assumptions; (iv) comparing the deferred revenue balance, which no longer includes a Covid-19 adjustment, with our independently calculated range; and (v) assessing the appropriateness of the related disclosures including sensitivity analysis in the Group Financial Statements. Professionals with specialised skill and knowledge were used to assist in the evaluation of the breakage assumption.
Allocation of expenses to the System Fund
As described in the System Fund and other co-brand revenues section of the Accounting policies and in Note 32 to the Group Financial Statements, the Group recorded System Fund expenses of $1,545m for the year ended 31 December 2023. The Group operates a System Fund to collect and administer cash assessments from hotel owners for specified purposes of use including marketing, reservations and the Group’s loyalty programme, IHG One Rewards. Costs are incurred and allocated to the System Fund in accordance with the principles agreed with the IHG Owners Association.
The principal considerations for our determination that performing procedures relating to the allocation of expenses to the System Fund is a critical audit matter are (i) the significant judgement by management when developing the Group’s internal policies in order to apply the principles agreed with the IHG Owners Association to expenses incurred; and (ii) a high degree of auditor judgement, subjectivity and effort in performing procedures and evaluating the appropriateness of management’s classification of expenses to the System Fund in line with the agreed principles.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the Group Financial Statements. These procedures included testing the effectiveness of controls relating to allocation of expenses to the System Fund. These procedures also included, among others, (i) understanding and assessing the internal policies that the Group has put in place in order to apply the principles agreed with the IHG Owners Association to expenses incurred; (ii) inspecting correspondence and minutes of meetings with the IHG Owners Association to identify whether allocations have been challenged or disputed; (iii) validating for a sample of cost centres the basis for any changes in the proportion of costs allocated to the System Fund compared to the prior year; (iv) testing a sample of expenses that had been allocated to the System Fund to assess whether they were accurately calculated, in compliance with the Group’s internal policies and consistent with historical practice; (v) checking whether there were any manual journal entries that transferred expenses to the System Fund to evaluate whether there was an appropriate rationale for any such journals; and (vi) determining whether the resulting classification of the expenses was in line with the principles agreed with the IHG Owners Association.
Recognition of the UK deferred tax asset
As described in the Taxes section of the Accounting policies and in Note 8 to the Group Financial Statements, a deferred tax asset of $113m was recognised related to the UK tax group as of 31 December 2023. Judgement is used when assessing the extent to which deferred tax assets, particularly in respect of tax losses, should be recognised. Deferred tax assets are only recognised to the extent that it is regarded as probable that there will be sufficient and suitable taxable profits or deferred tax liabilities in the relevant legal entity or tax group against which such assets can be utilised in the future. Tax assumptions are overlaid to profit forecasts to estimate future taxable profits. This process has demonstrated that the UK deferred tax asset should reverse over a seven to ten year period, with the lower end of the range based on the Group’s base case forecast and the upper end of the range based on the Group’s severe downside case forecast. The losses do not expire, although they can only be offset against 50% of annual UK taxable profits. The Group’s TCFD disclosures describe how physical and transitional climate risks present both risks and opportunities for IHG. The potential downside risks have been considered in the context of the UK deferred tax asset recoverability assessment, without taking account of opportunities or mitigating actions.
The principal considerations for our determination that performing procedures relating to recognition of the UK deferred tax asset is a critical audit matter are (i) the significant judgement by management involved in determining the future taxable profits of the UK tax group including the impact of climate risk; (ii) a high degree of auditor judgement, subjectivity and effort in performing procedures and evaluating the reasonableness of management’s forecast of a seven to ten year period to recover this asset; and (iii) the audit effort involved the use of professionals with specialised skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the Group Financial Statements. These procedures included testing the effectiveness of controls relating to the recognition of deferred tax assets and the Group’s forecasting process. These procedures also included, among others, (i) evaluating the appropriateness of the assumptions reflected in the UK forecasts, including assessing the reasonableness of growth predictions compared to historical experience and industry data, benchmarking management’s estimates to third-party sources and considering how climate risk has been incorporated; (ii) assessing the appropriateness of tax overlay adjustments applied to the forecasts by reference to the requirements of tax principles, including the restriction of losses to 50% of annual UK taxable profits; (iii) assessing whether the UK deferred tax asset meets the recognition criteria of IAS 12; (iv) assessing the appropriateness of the forecast recovery period of seven to ten years; and (v) assessing the appropriateness of the related disclosures in the Group Financial Statements. Professionals with specialised skills and knowledge were used to assist in the evaluation of recognition of the UK deferred tax asset.
/s/PricewaterhouseCoopers LLP
London, United Kingdom
We have served as the Group’s auditor since 2021.